In this article, we discuss the 10 stocks under $5 with high potential.
The US stock market is the biggest equity trading market in the world. The biggest and most valuable companies trade on exchanges in the US. However, given the bias towards growth in the past few years, the stocks of these big firms, like NVIDIA Corporation (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD) and Freeport-McMoRan Inc. (NYSE:FCX), have become out of reach for the common investors. For those not willing to break the bank for investments in stocks, there are many cheaper options available that offer high potential.
Smart traders know that there are deals to be had when markets swoon and stock prices drop across the board. But picking the right stock to buy is tough because of multiple reasons. Buying the dip is not as simple a trading strategy as it might seem and should be cautiously approached. Some of the potential indicators to look for when investing in small firms are growth in revenues and earnings per share, as well as projected figures for these across the next five years. In addition, the price-to-earnings ratios should also be monitored.
Stocks that are trading at a discount to all-time highs generally offer room for growth. In addition, as the markets recover from the macro slowdown, analysts are expecting average annual EPS growth of more than 20% over the next five years, a clear indicator that it might be a very good time to invest in the stock market, especially in cheaper firms that offer explosive growth potential. There is reason for investors to be cautious when trading in cheap stocks too, as recent research suggests that these trades are loaded with risk.
Generally, stocks priced under $5 per share are known as penny stocks. Trades in penny stocks have increased as more retail investors enter the market. This increase is surprising since historical data shows that these trades rarely make money. Calculations by Sihan Zhang, a doctoral student at the University of Alberta, reveal that between July 2011 and October 2020, the average annualized return of Over the Counter (OTC) shares in the US, mostly penny firms, was 44% in the red.
Another important factor to consider when trading in penny stocks is that many of them lie outside the US. Of the 11,500 firms listed on the OTC, nearly three quarters are based outside the US. The influence of retail investors in penny trades can also be understood when viewed in context of a Morgan Stanley report from last June that outlined that these traders accounted for nearly 10% of the daily trading volume on the Russell 3000, the broadest stock index in the US. This number has gone up since last year.
However, there are also many positives to consider when trading in penny stocks. Nikolaos Panigirtzoglou, a global markets strategist at JPMorgan, has highlighted how a list of stocks popular with retail traders in the US outperformed the benchmark S&P 500 this year. The analysis highlights a market shift towards growth companies that trade on the cheap. As the market recovers from a slow year, the volume of penny stock trades has started picking up as well.
Our Methodology
The companies that have upcoming growth catalysts and were priced under $5 per share, as of December 14, were selected for the list. Special importance was assigned to outlining the basic business fundamentals and analyst ratings for each firm to provide readers with some context so they can make more informed investment choices. Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Stocks Under $5 With High Potential
10. Tempo Automation Holdings, Inc. (NASDAQ:TMPO)
Number of Hedge Fund Holders: N/A
Share Price as of December 14: $2.01
Tempo Automation Holdings, Inc. (NASDAQ:TMPO) manufactures electronic products. The shares of the firm have invited a lot of investor interest since debuting on the market last year. In late December, the company entered into an agreement with White Lion Capital. Under the deal, the latter committed to purchase up to an aggregate of $100 million in the post-closing combined company’s common shares from time to time.
Among the hedge funds being tracked by Insider Monkey, London-based firm LMR Partners is a leading shareholder in Tempo Automation Holdings, Inc. with 250,000 shares worth more than $2.6 million.
Unlike NVIDIA Corporation, Advanced Micro Devices, Inc., and Freeport-McMoRan Inc., Tempo Automation Holdings, Inc. is one of the more affordable stocks with high potential.
9. Mesoblast Limited (NASDAQ:MESO)
Number of Hedge Fund Holders: 2
Share Price as of December 14: $3.33
Mesoblast Limited (NASDAQ:MESO) engages in the development of regenerative medicine products in Australia, the United States, Singapore, the United Kingdom, and Switzerland. On November 23, the firm posted earnings for the first fiscal quarter, reporting losses per share of $0.0243, beating analyst estimates by $0.14. The revenue over the period was $1.5 million, down 58.3% compared to the revenue over the same period last year and missing market estimates by $1.82 million. The firm has several promising drug pipelines in fields such as cardiovascular, spine orthopedic disorder, oncology, hematology, and immune-mediated and inflammatory diseases.
At the end of the third quarter of 2022, 2 hedge funds in the database of Insider Monkey held stakes worth $534,000 in Mesoblast Limited, compared to 1 in the preceding quarter worth $95,000.
Among the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Mesoblast Limited with 401,500 shares worth more than $1 million.
8. Vasta Platform Limited (NASDAQ:VSTA)
Number of Hedge Fund Holders: 2
Share Price as of December 14: $3.93
Vasta Platform Limited (NASDAQ:VSTA) is an education company that provides educational printed and digital solutions to private schools operating in the K-12 education sector in Brazil. On June 3, Vasta Platform Limited revealed that it is executing a minority investment agreement by its wholly-owned subsidiary, Somos Sistemas de Ensino S.A, which establishes the terms and conditions for the issuance and the payment of new shares on Educ Bank Gestão de Pagamentos Educacionais S.A. In earnings for the third quarter of 2022, the firm posted a 48% year-on-year increase in revenue.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Ronit Capital is a leading shareholder in Vasta Platform Limited with 980,471 shares worth more than $5.2 million.
At the end of the third quarter of 2022, 2 hedge funds in the database of Insider Monkey held stakes worth $5.2 million in Vasta Platform Limited, compared to 1 in the preceding quarter worth $103,000.
7. Good Times Restaurants Inc. (NASDAQ:GTIM)
Number of Hedge Fund Holders: 6
Share Price as of December 14: $2.72
Good Times Restaurants Inc. (NASDAQ:GTIM) engages in the restaurant business in the United States. Amid inflation, restaurant stocks have declined, offering investors a good entry-point to own a company that is trading at a very fair value, only 3 times earnings. In earnings for the third quarter of 2022, reported in mid-August, the company posted a revenue of more than $36 million, up over 7% compared to the revenue over the same period last year. The earnings per share were $0.04. The firm has no long-term debt and looks set for healthy growth in the future.
At the end of the third quarter of 2022, 6 hedge funds in the database of Insider Monkey held stakes worth $1.9 million in Good Times Restaurants Inc., compared to 5 in the preceding quarter worth $2.7 million.
Among the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Good Times Restaurants Inc. with 31,897 shares worth more than $69,000.
6. Telefónica, S.A. (NYSE:TEF)
Number of Hedge Fund Holders: 7
Share Price as of December 14: $3.44
Telefónica, S.A. (NYSE:TEF) provides telecommunications services in Europe and Latin America. On December 12, Telefonica unveiled that Telefónica Germany and Nokia have aggregated sub-6 GHz spectrum frequencies in an industry-first two-component carrier uplink Carrier Aggregation trial on 5G Standalone. On December 12, the firm declared a semi-annual dividend of $0.1553 per share. It is rare for a stock this cheap to offer dividend payments, making it a top play in the under $5 share market.
On November 17, Credit Suisse analyst Pilar Vico maintained a Neutral rating on Telefónica, S.A. stock and raised the price target to EUR 4.20 from EUR 4.10.
At the end of the third quarter of 2022, 7 hedge funds in the database of Insider Monkey held stakes worth $42.5 million in Telefónica, S.A., compared to 7 in the previous quarter worth $59.9 million.
Among the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Telefónica, S.A. with 1 million shares worth more than $3.3 million.
In contrast to NVIDIA Corporation, Advanced Micro Devices, Inc., and Freeport-McMoRan Inc., Telefónica, S.A. is one of the more affordable stocks with high potential.
5. Lloyds Banking Group plc (NYSE:LYG)
Number of Hedge Fund Holders: 8
Share Price as of December 14: $2.29
Lloyds Banking Group plc (NYSE:LYG) provides a range of banking and financial services in the United Kingdom. On December 11, Lloyds Banking Group revealed that its private equity arm, LDC, has made a significant investment in capital markets technology outfit, E-Trading Software. The investment will support E-Trading Software as it looks to grow its range of services and expand its offering internationally.
On October 28, JPMorgan analyst Raul Sinha maintained an Overweight rating on Lloyds Banking Group plc. (NYSE:LYG) stock and raised the price target to 58 GBP from 56 GBP.
At the end of the third quarter of 2022, 8 hedge funds in the database of Insider Monkey held stakes worth $57.8 million in Lloyds Banking Group plc (NYSE:LYG), compared to 9 the preceding quarter worth $31.6 million.
In its Q3 2021 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Lloyds Banking Group plc (NYSE:LYG) was one of them. Here is what the fund said:
“Lloyds’ great return is partly the result of its exceptionally low starting price. Nevertheless, company fundamentals have also improved in part because of management’s conservative approach to reserving for loan losses as well as its decision at the beginning of the pandemic to suspend its program of returning excess capital to shareholders—a program it has since reinstated.”
4. Nomura Holdings, Inc. (NYSE:NMR)
Number of Hedge Fund Holders: 8
Share Price as of December 14: $3.64
Nomura Holdings, Inc. (NYSE:NMR) provides various financial services to individuals, corporations, financial institutions, governments, and governmental agencies worldwide. The firm operates a network of 119 branches, engaging in services like the management of funds, investment trusts, and other investment vehicles, as well as the provision of investment advisory, custodial, and administrative services.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in Nomura Holdings, Inc. with 2.9 million shares worth more than $9.6 million.
3. Banco Bradesco S.A. (NYSE:BBD)
Number of Hedge Fund Holders: 15
Share Price as of December 14: $2.55
Banco Bradesco S.A. (NYSE:BBD) provides various banking products and services to individuals, corporates, and businesses in Brazil and internationally. On December 1, the company declared a monthly dividend of $0.0032 per share, a decrease of 3% from the previous dividend of $0.0033 per share.
On November 17, JPMorgan analyst Domingos Falavina upgraded Banco Bradesco S.A. stock to Overweight from Neutral with a price target of R$21, down from R$22, highlighting that shares are now offering a good entry point, specifically for investors willing to endure this cycle.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Banco Bradesco S.A. with 25 million shares worth more than $92.5 million.
2. Tilray Brands, Inc. (NASDAQ:TLRY)
Number of Hedge Fund Holders: 16
Share Price as of December 14: $3.56
Tilray Brands, Inc. (NASDAQ:TLRY) engages in the research, cultivation, production, marketing, and distribution of medical cannabis products in Canada, the United States, Europe, Australia, New Zealand, Latin America, and internationally. Cannabis stocks have declined after US legislation that would have allowed American marijuana businesses access to US banks was excluded from a recent defense bill. However, cannabis legislation remains high on the agenda of lawmakers, giving these firms plenty of upside potential.
On November 1, Bernstein analyst Nadine Sarwat initiated coverage of Tilray Brands, Inc. stock with a Market Perform rating and $3.90 price target, highlighting that the company’s cannabis business has best-in-class gross margins and should be free cash flow positive this fiscal year.
At the end of the third quarter of 2022, 16 hedge funds in the database of Insider Monkey held stakes worth $33.4 million in Tilray Brands, Inc., compared to 14 in the previous quarter worth $12.6 million.
1. Nokia Oyj (NYSE:NOK)
Number of Hedge Fund Holders: 24
Share Price as of December 14: $4.99
Nokia Oyj (NYSE:NOK) provides mobile, fixed, and cloud network solutions worldwide. On December 8, Nokia announced that it had launched the second EUR 300 million phase of the share buyback program that aims to return up to EUR 600 million of cash to its shareholders in tranches over a period of two years.
On November 9, Deutsche Bank analyst Robert Sanders Nokia Oyj maintained a Buy rating on Nokia Oyj stock and lowered the price target on Nokia to EUR 5.50 from EUR 6.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in Berkshire Hathaway Inc. (NYSE: BRK-A) with 20.3 million shares worth more than $86.7 million.
In its Q3 2022 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and Nokia Oyj was one of them. Here is what the fund said:
“Two clear examples of value traps that I remember with particular anger include Nokia. Two companies suffered a rapid technological disruption in their business model and did not know or were not able to reinvent themselves in time. In the case of Nokia, we were dealing with the undisputed leader in cell phone sales. The company had an (apparently) ultra-solid balance sheet and enviable operating margins. However, the arrival of the smartphone brought a radical change to the industry, to which Nokia did not know how to adapt. In a short period, players such as Apple and Samsung wiped the Finnish giant off the map.”
You can also take a peek at 11 Undervalued Canadian Stocks To Buy and 10 Best Cannabis Stocks To Buy.
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This article is originally published at Insider Monkey.
