Finding cheap stocks is not that difficult, says Michael Fowlkes of Market Intelligence Center; it’s finding good stocks with low price tags that is a little bit more challenging.
I have never been a fan of placing a value on a stock purely based on its share price. Oftentimes a stock that is trading below $10 a shares presents a horrible value for investors, while at the same time a stock trading above $100 can offer a great value.
For the most part, a stock's price, by itself, means very little, and provides very little insight into the health of the underlying company. Having said that, there are a few reasons why some traders tend to prefer lower-cost stocks.
For one, it is easier to buy lower-cost stocks in round lots of 100. Why does this even matter? One reason is that some investors like to sell calls against their stock positions. Unless you are dealing with a stock that trades mini-options, you need to own 100 shares of the stock in order to accomplish this trade, also known as a covered call.
Finding "cheap" stocks is not very difficult, but finding good stocks with low price tags becomes a little more challenging. That is not to say it is an impossible task. With a bit of work, you can easily put together a basket of relatively inexpensive stocks with a decent upside potential.
This week we are going to look at a few stocks that are currently trading under $20 a share that you can consider adding to your portfolio.
Ford Motor (F) Daily Chart
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Detroit automaker Ford Motor (F) is currently trading at just $15.62 per share, but even more enticing is the stocks price-to-earnings ratio of just 8.8. General Motors (GM), by comparison, has a P/E ratio of 15.8. The auto industry continues to improve, and analysts have forecast another good year in 2014. Edmunds has forecast auto sales will hit 16.4 million in the current year, up from 15.6 million during 2013, which was a 7.6 increase from the previous year. Ford recently outpaced analyst estimates for its fourth quarter, but warned that profit may drop in the current year, which has applied some downward pressure to the stock. I believe it is a great buying opportunity. The dip in profit is primarily a result of the company launching so many new models during the year…23 in all. The company is also opening three new factories this year. Ford is positioning itself for the future, and I believe the stock is a solid buy at the current level.
Corning, Inc. (GLW) Daily Chart
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Corning (GLW) is the company behind the Gorilla Glass that is used in a wide range of smartphone and tablets. There has been some speculation in recent weeks that Apple (AAPL) could move away from using Gorilla Glass in its next iPhone, but that remains a very remote possibility. The alternative would be a sapphire outer layer, which would arguably be more scratch resistant (much more resistant), but is also highly uneconomical to use en mass. Apple will use it more in certain ways, but the main glass it uses will remain Gorilla Glass. Corning stock has been trending higher for the last year, and the latest rumors failed to have any impact. The stock trades with a P/E of 14.6. Analysts forecast forward earnings growth of 14%. With the company producing a main component in the smartphone and tablet market, I believe the current valuation makes GLW a very compelling.
NEXT PAGE: 4 More Low-Priced Stocks
|pagebreak|TASER International (TASR) Daily Chart
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Stun-gun manufacturer Taser International (TASR) has been on a roll lately. The company is coming off a strong fourth quarter report, during which it had net income of 13 cents per share, up from 6 cents during the same period last year, and easily topped the 7-cent consensus estimate. Revenues were up 25%. While it is true that Taser can be a volatile stock, its products are gaining popularity, which is a trend I see continuing. The company's electronic weapon sales grew 24% year over year. Taser has two things going for it right now. First, the original Taser guns that it sold are starting to get old, leading former customers to upgrade to newer, more advanced products. The company is also positioning itself as a leader in wearable security… mainly video cameras that police officers can wear. Taser believes, and I agree, that this has huge potential. Down the road it is not hard to imagine a world where everyone involved in law enforcement will be wearing a video camera. Taser's valuation is a bit steep right now, with a price-to-earnings ratio of 51, but analysts have forecast 29% earnings growth, which should keep the stock moving in the right direction.
Bank of America (BAC) Daily Chart
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Financial giant Bank of America (BAC) is currently trading at $17.33, just shy of its 52-week high. The stock has remained in a very steady upwards trend over the last 12 months, and the company is coming off a better-than-expected fourth-quarter, which saw it post better-than-expected results on the top and bottom line. You never want to buy a stock based on a company's past performance, but analysts see more strength ahead and forecast earnings growth of 20%, which should keep the stock trending higher. Bank of America is next scheduled to report earning April 1.
Applied Materials (AMAT) Daily Chart
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Applied Materials (AMAT) provides equipment and software used in semiconductor, flat-panel displays, and solar panel systems. The stock has a rather high price-to-earnings ratio of 50.3, but that can be partially explained by the fact analysts have forecast earnings 26% earnings growth. The stock is currently trading at $19.64, which is just three pennies shy of its 52-week high, a result of a solid upwards trend over the last 12 months. AMAT has solid stock performance, and the company is coming off a fiscal first quarter, which saw revenues increase 39%, fueled by higher demand from makers of flash memory chips. If Applied Materials is able to keep pace with its earnings forecasts, there is no reason why this stock should not continue trending higher.
Cablevision (CVC) Daily Chart
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Cable television provider Cablevision (CVC) is currently trading at $18.15, which is 10% under its 52-week high. That gives the stock a price-to-earnings ratio of 10.3. After trading lower with the overall market in January, the stock has made back all of its losses, and traded into the green for the year. Pay television providers have been dealing with subscriber losses in recent years, but during Cablevision's recent quarter, it reported losing only 18,000 cable subscribers during the quarter, less than the 28,900 losses Wall Street expected. Its earnings also came in higher than expected at 18 cents per share, twice the consensus estimate. In addition, Cablevision forecast growth in cash flow in 2014. Earnings are not expected to grow materially, with analysts forecasting just 4% growth, but since the stock has a P/E of just 10.3 the anemic earnings growth can be overlooked.
By Michael Fowlkes of Market Intelligence Center
