Picking the right stocks in which to invest is no easy task. It’s even more of a challenge if you’re on a tight budget.
As of press time, S&P Global Market Intelligence identified at least 3,700 stocks that trade under $25 per share, which represents a broad universe from which to pick. Consumers Digest asked Wall Street companies Morningstar, Zacks Investment Research and Standard & Poor’s (S&P) to screen for stocks that (in late June/early July 2016) were priced under $25 per share and were rated highly. We then compared those stocks against their respective equity summary scores by Thomson Reuters StarMine and Fidelity Investments.
All of the stocks that are represented here as great values were under $25 per share when they were selected. The share prices listed below are as of Sept. 1, 2016.
You should know that investing in an individual stock can be risky. However, you can construct a diversified portfolio of individual stocks that suits your investment objectives. If you put aside $25 per week for stocks ($1,300 per year), that’s a solid foundation from which to build your portfolio over time.
According to experts, the following characteristics are good for identifying stocks that are worth buying, regardless of whether they’re low-priced.
* COMPANY VALUE. The company should have a market value of at least $250 million. This ensures that the stock isn’t a fad but a viable business that generates revenue and profit and can weather potential economic downturns. Typically, company value can be found on free market-data websites.
* DIVIDENDS. We chose a mix of capital-appreciation (growth) and dividend-paying (value) stocks to account for different investing styles. That way, you can invest in the style that you choose to follow or both to diversify your assets. For companies that pay a dividend—a direct cash payout to shareholders—you typically can find dividend information under “investor relations” on a company’s website.
* PRICE-EARNINGS RATIO. The forward price-earnings (P/E) ratio reflects a company’s current stock price divided by its 12-month predicted (or “forward”) earnings per share. Zacks says that’s a better measure of a company’s future growth and value than is using the historic (past 12 months) P/E ratio. Experts say a forward P/E ratio should be compared in context with the company’s historic P/E ratio average and how it compares with the company’s industry, which you can find on many free market-data websites. According to investment website The Motley Fool, the long-term average P/E ratio is about 15. However, that average varies by industry—industries that have higher perceived risk have lower P/E ratios.
The best strategy is to buy and hold a stock for the long term, but at least 1 year and 1 day, because holding a stock for 366 days allows you to qualify for long-term capital-gains taxes. How much of a difference that this makes when it comes to your tax rate varies, depending on your overall income and marital status. It also is a good idea to set prices at which you might review your decision to own a stock and consider selling it if the stock meets that goal.
If you’re getting started in the stock market or just are looking for the next opportunity to add to your portfolio inexpensively, here are 12 great buys:
Listed price, company value, dividend yield (where applicable) and forward P/E ratio are as of press time.
Nasdaq: AMAT; Price: $29.84
Company value: $28.63 billion; dividend yield: 1.52 percent; forward P/E ratio: 17.11
Applied Materials, which is one of the world’s largest suppliers of equipment for the fabrication of semiconductors, flat-panel LCDs, and solar photovoltaic cells and modules, would give your portfolio a technology option.
According to Zacks, Applied Materials is a global leader in semiconductor equipment sales, and the long-term growth prospects for Applied Material’s LCD business look healthy. Applied Materials also has a strong balance sheet and a strong position in China, which translates to strong growth potential, Zacks says.
Abhinav Davuluri of Morningstar noted in a May 2016 report that Applied Materials’ product portfolio and broad base of installed equipment will allow the company to weather business cycles, and he expected the company to experience “decent growth over the long term.”
BANC OF CALIFORNIA
NYSE: BANC; Price: $22.10
Company value: $1.1 billion; dividend yield: 2.16 percent; forward P/E ratio: 13.59
If you’re looking to invest in a bank stock, then you should consider depositing shares of Banc of California in your portfolio.
Analysts at Ford Equity Research in a July 2016 report reiterated a “strong buy” on Banc of California, which is a bank-holding company.
Ford Equity projects that shares in Banc of California will outperform the market strongly over the next 6–12 months based on its analysis of three factors that influence common stock performance: earnings strength, relative valuation and price movement.
“Based on operating earnings yield, the company is undervalued when compared to all of the companies we cover,” Ford Equity analysts said in the report.
Investment company Raymond James & Associates, in a May 2016 report, gave the bank an “outperform” rating because of the bank’s strong loan and deposit growth, its outlook for improved profitability and excellent credit quality.
BMC STOCK HOLDINGS
Nasdaq: BMCH; Price: $19.98
Company value: $1.33 billion; dividend yield: NA; forward P/E ratio: 24.52
The boom in single-family housing makes shares of BMC Stock Holdings, which was known as Stock Building Supply Holdings, worthy of your consideration.
Credit Suisse analyst Michael Dahl in a June 2016 report gave BMC Stock an “outperform” rating and a $22 target price—the price that he expects the stock to be in a year. The analyst noted that improving residential construction and fast-growing metro markets, the company’s recent market-share gains and its potential to gain more market share as reasons for his positive rating.
SunTrust, also in a June 2016 report, supported buying BMC Stock based on expectations that single-family housing will continue to grow quickly in 2017. Baird Equity Research analysts, in a May 2016 report, gave BMC Stock an “outperform” rating, also citing the residential housing recovery. However, as of press time, Fidelity Investments revised its rating to “bearish.”
Nasdaq: EBAY; Price: $32.01
Company value: $35.18 billion; dividend yield: NA; forward P/E ratio: 19.57
Despite a May 2014 data breach and changes to Google’s search-engine algorithm that affect how eBay search results appear, you should consider this stock, analysts say.
Online retail sales continue to increase, and eBay is the second-most popular retail website in the United States behind Amazon, says Christopher Pavese, who is the president and chief investment officer at Broyhill Asset Management. Pavese notes that 60 percent of eBay’s sales are abroad, where sales still are growing.
R.J. Hottovy of Morningstar agrees. He stated in a July 2016 report that eBay’s live listings of items increased above 1 billion in the second quarter of 2016. Furthermore, he noted that eBay classified listings increased 15 percent in the second quarter, compared with a year earlier. The company has an “outperform” rating from Thomson Reuters StarMine.
NYSE: ERJ; Price: $17.80
Company value: $3.37 billion; dividend yield: 0.35 percent; forward P/E ratio: 9.67
Investors might fly high with Embraer, which manufactures and sells a variety of aircraft.
Positive signs for investors: The company has a more comprehensive lineup of business aircraft than do other makers of regional jets, which gives Embraer a competitive advantage, and a growing defense business that will drive sales and profit growth, according to a May 2016 report by Chris Higgins of Morningstar. The company has Morningstar’s highest rating (five stars).
Embraer’s “investment plans for product development in 2016 will ensure strong demand for its products and maintain bottom-line growth,” according to Zacks.
However, potential currency volatility exists, Higgins said. The company is based in Brazil, and shares in the company trade as American Depositary Receipts. Consequently, you should be aware that the company’s revenue and profit could be affected by currency rates. Financial website Bloomberg reported in July 2016 that Brazilian-U.S. currency rates are forecast to change little through 2017.
Morningstar has a fair-value estimate of $34.
NYSE: FCAU; Price: $6.80
Company value: $8.26 billion; dividend yield: NA; forward P/E ratio: 4.4
A combination of factors might have you parking FCA U.S. in your portfolio.
Morningstar, which gives the automaker its highest rating of five stars, says the stock trades at a discount of at least 50 percent compared with its fair-market estimate of $16 per share. Furthermore, in May 2016, FCA and Google announced a partnership to develop autonomous minivans. That “gives Fiat Chrysler a fast-lane entry into autonomous technology, practically leveling the playing field with more-advanced competitors,” said Richard Hilgert of Morningstar in a May 2016 report.
Hilgert pointed out that, because FCA reports its revenue and profit in euros and Chrysler does business in U.S. dollars, unfavorable currency-rate swings are a risk. That means that when the dollar is strong (as it was at press time), FCA’s financial results might look better than if the euro increased relative to the U.S. dollar. The dollar is expected to remain strong compared with the euro for the forseeable future, however.
Nasdaq: JBLU; Price: $15.77
Company value: $5.91 billion; dividend yield: NA; forward P/E ratio: 8.47
Investors might consider reserving a portion of their portfolio for JetBlue Airways, which operates a low-cost airline.
“We have a ‘strong buy’ opinion on the shares of JetBlue, reflecting our view that [the company] should remain profitable through 2017 on good passenger travel demand and lower fuel costs,” said Jim Corridore of S&P in a June 2016 report. Corridore likes JetBlue’s moves to expand its capacity in areas where the airline has a niche and its focus on keeping costs controlled.
If you buy this stock, you should be aware that, because JetBlue’s operations are particularly concentrated at the New York-JFK, Boston Logan and Fort Lauderdale, Florida, airports, any adverse weather that’s in those areas will affect JetBlue’s operations and, in turn, earnings, according to a June 2016 Raymond James report.
Zacks gives JetBlue a Value, Growth, Momentum (VGM) rating of A, its highest rating. Corridore assigned JetBlue a 12-month price target of $28.
NYSE: KNL; Price: $26.17
Company value: $1.24 billion; dividend yield: 2.38 percent; forward P/E ratio: 15.17
Demand for office furniture is on the upswing, according to S&P, and so, too, are shares of Knoll. S&P gives the maker of office furniture its highest rating of five stars. “Weakness in demand within the core office segment troughed, and we see improving trends over the next 12 months,” said Joseph Agnese of S&P in a June 2016 report.
Research analysts at Raymond James & Associates also are bullish on Knoll. They gave the company an “outperform” rating in April 2016. “Despite facing a sluggish industry backdrop in its largest segment, office furniture, Knoll continues to execute well,” analysts reported.
S&P analysts say potential risks for Knoll stock include a weaker recovery in nonresidential construction, an increase in raw-material costs and increased competition.
Nasdaq: MEET; Price: $5.71
Company value: $306.88 million; dividend yield: NA; forward P/E ratio: 20.41
Investors might want to get to know MeetMe, which owns and operates a social network for meeting people on the internet and on mobile platforms in the United States.
Louis Navellier, who is the chairman and chief investment officer of Navellier & Associates and the editor of the Emerging Growth investment newsletter, likes MeetMe, because sales and profits exceeded expectations in the first quarter. He gave the stock a grade of “A” and rated it a “strong buy.” According to Nasdaq, analysts increased earnings estimates for the second quarter to 5 cents per share, compared with 2 cents per share for the same period in 2015.
Financial-media website Benzinga.com noted in August 2016 that MeetMe beat analysts’ earnings expectations by an average of 4.1 percent for 6 consecutive quarters.
The stock price of MeetMe shares increased 48.9 percent year to date through July 22, 2016. However, that doesn’t bother Zacks. “The company’s future is quite favorable,” Zacks reported in July 2016. MeetMe has a “buy” rating from Zacks; its analysts said the target price is $7.25.
MGM RESORTS INTERNATIONAL
NYSE: MGM; Price: $24.34
Company value: $13.55 billion; dividend yield: NA; forward P/E ratio: 33.46
Money can be made in gambling, or at least by investing in MGM Resorts International.
Despite posting mixed results for the first quarter of 2016, and despite gambling-revenue declines in China, MGM Resorts’ domestic resorts have shown a relatively healthy improvement in revenue and profit and a sizable rate of profit, according to a June 2016 report from Tuna Amobi of S&P.
“We view MGM as well-positioned to further benefit from favorable supply/demand dynamics in Las Vegas (and its conventions business), while on track with its profit-growth plan,” Amobi said in the report.
Others also are bullish on MGM Resorts, which is the largest gambling and hotel operator on the Las Vegas Strip. “We are raising our fair-value estimate to $28 from $26 to account for improved domestic margins being generated by the company’s profit-growth plan, instituted in 2015,” Dan Wasiolek of Morningstar said in a June 2016 report.
RAYONIER ADVANCED MATERIALS
NYSE: RYAM; Price: $11.91
Company value: $595.98 million; dividend yield: 2.03 percent; forward P/E ratio: 11.33
Rayonier Advanced Materials, which is the biggest company in the field of cellulose specialties (CS) material, is more than just portfolio filler. Rayonier Advanced Materials has about 30 percent of the 1.6 million-ton market for CS, which is used for cigarette filters, LCDs and pharmaceuticals.
The company’s top product, acetate tow, which is used mainly in cigarette filters, accounts for about 80 percent of CS tons that are sold, according to Morningstar. Rayonier Advanced Materials also is the world’s top acetate producer and supplies about half of the market. That dominance means that competitors could have a difficult time taking away market share.
John Blank, who is the chief equity strategist at Zacks, assigned Rayonier in a July 2016 report a VGM rating of “A.” It’s “something growthy but not yet discovered,” he said.
Zacks considers Rayonier Advanced Materials to be a great combination of value and growth: The stock has a low P/E ratio, a solid outlook and a decent dividend.
Nasdaq: STLD; Price: $24.35
Company value: $6.53 billion; Dividend yield: 2.09 percent; forward P/E ratio: 12.57
Steel Dynamics, which is a producer of steel products, such as flat-rolled steel, structural steel, special-bar-quality steel and rails, received a “strong buy” recommendation from S&P analyst Matthew Miller in a June 2016 report.
Furthermore, analysts at Zacks assign the company a “buy” rating and a VGM score of “A.”
Despite sluggish growth in demand in the steel industry, Steel Dynamics, which also produces joists, girders and decking for nonresidential buildings, will benefit over the next several years from continued increases in construction spending and automobile production, said Miller, who gave Steel Dynamics a 12-month target price of $30.
According to a July 2016 Morningstar report, reasons to be bullish on the stock include: The company has a highly diversified product line; it’s been able to generate high operating margins compared with other U.S. mills; and its electric arc furnaces are newer and more efficient than are the blast furnaces of its peers, thereby requiring lower maintenance expenses and less downtime compared with competitors.
Robert Powell writes on personal finance and retirement for Marketwatch, USA Today and The Wall Street Journal. He is the editor of the Retirement Weekly newsletter.