While the concept of undervalued stocks under $5 sounds straightforward enough, investors need to apply more caution in this arena rather than for securities that are near the good side of $50. Fundamentally, it just comes down to this reality: if a publicly traded company drops that low, there might be a reason for it.
At the same time, you’re not going to get rich just by exclusively betting on enterprises that everybody else believes in. Put another way, the reason why blue chips represent stable investments is because their businesses are relatively predictable.
However, you pay a price for that predictability with limited upside. On the other hand, you don’t quite know what you’re going to get with undervalued stocks under $5.
To minimize this risk, I explored relevant enterprises where the market either does not recognize the fundamental catalysts or are severely underrating the upside potential. Either way, you can end up the winner with these contrarian but compelling ideas for undervalued stocks under $5.
Sibanye Stillwater (SBSW)
Although a terribly risky idea, metals and mining specialist Sibanye Stillwater (NYSE:SBSW) could be worth a look for speculators seeking undervalued stocks under $5. Still, let’s get the bad news out of the way first. For one thing, the market performance is absolutely horrible. Over the past 52 weeks, SBSW lost almost 57% of equity value. Fundamentally, Sibanye’s challenges centered on reduced metal prices and operational challenges.
With commodities priced in dollars, it didn’t help that the Federal Reserve embarked on an interest-rate-hiking campaign. Subsequently, the hawkish pivot contributed to demand containment for core industrial metals like platinum and palladium. Factor in security costs related to protecting mines against illegal and criminal activities and Sibanye shareholders didn’t have a great time last year.
However, it’s possible that SBSW’s lowly forward earnings multiple of 7.97X – on paper lower than about 67% of the competition – could be credible. With harsh winter conditions crimping electric vehicle drivers, combustion-powered cars might see a relevance surge. And that could lead to increased palladium demand due to their use in catalytic converters.
Yes, Sibanye is risky, no doubt about it. However, it also has an underappreciated narrative.
Ammo Inc (POWW)
Obviously, with a name like Ammo Inc (NASDAQ:POWW), we’re going to touch onto some controversial subject matter. However, I’d like you to bear with me as the appropriately named ticker POWW offers a viable idea for undervalued stocks under $5. As a manufacturer of ammunition and an owner of a popular firearms-related online marketplace, Ammo addresses a massive retail market.
As the Pew Research Center pointed out recently, guns are “deeply ingrained” in American society. Unsurprisingly, about four in 10 U.S. adults say they live in a household with a gun. And that includes 32% who say they own one. Further, the social issues and anxieties stemming from the COVID-19 pandemic sparked a boom in firearm sales.
Like it or not, someone has to “feed” all those guns. Politically, if President Joe Biden wins reelection, one of his talking points will surely zero in on gun control. That should catapult gun sales and in turn provide a downwind benefit to AMMO stock.
With analyst backing and a very modest forward earnings multiple of 11.35X, POWW makes a tempting case for undervalued stocks under $5.
Broadwind (BWEN)
A precision manufacturer of structures, equipment, and components for clean technology and other specialized applications, Broadwind (NASDAQ:BWEN) provides technologically advanced high-value products to customers with complex systems and stringent quality standards that operate in energy, mining, and infrastructure sectors. Its capabilities include but are not limited to functions such as heavy fabrications, welding, metal rolling, and coatings, among many others.
Fundamentally, as the clean and renewable energy sector continues to expand, Broadwind should benefit. Yes, the company caters to enterprises in the traditional hydrocarbon ecosystem. However, much of the infrastructure is built out. On the clean and renewable side, however, it’s a relatively new field. Moreover, should President Biden win a second term, the push for green solutions could help lift BWEN.
That’s really what analysts are anticipating with their unanimous strong buy view. As well, the average price target of $6 implies 150% upside potential. To be fair, investors must consider the 52-week loss of 47%. Still, with the aforementioned fundamental relevance combined with a modest trailing-year earnings multiple of 14.12X, Broadwind is one of the undervalued stocks under $5 to gamble on.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.