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Cheap stocks in investor parlance are those that have an attractive valuation. It may be with respect to sales, or earnings, or book value, or whatever. And it could be relative to the group, or industry, or a benchmark index like the S&P 500. You could be looking for the performance year to date, or you could be looking at the performance over the past year.
But what if you’re looking for something different? What if you’re willing to wait a bit longer on a smaller outlay to generate a similar rate of gains?
One way this could be possible is by buying stocks that are cheap on the pocket, i.e. they have a low dollar value. Since they are priced low, these stocks are likely to belong to smaller companies with a fewer number of analysts covering them. But the risk could still be low if you do your homework and check for the health of the companies.
There are three things that should concern you particularly. The first would be the condition of the balance sheet. Management effectiveness is also important to check since small companies go on to become bigger companies only when they have strong people at the helm. The third thing to check would be the companies’ recent earnings performance. If things look good on all three fronts and there’s a generally positive estimated growth trend, there’s a fair chance of the stock’s outperformance.
At Zacks, we also use the Zacks Rank for stocks (#1 for Strong Buy, #2 for Buy, #3 for Hold, #4 for Sell and #5 for Strong Sell). This ranking system has proved effective in selecting winners for years on end.
When you match the rank with the Zacks Style Score System (for value, growth or momentum), you also get stocks that particularly suit your investment style.
Known as Pacific Ethanol before Jan 2021, Sacramento, CA-based Alto Ingredients is a producer of specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants, cleaners, alcoholic beverages, flavor extracts and vinegar. It also supplies essential ingredients like dried yeast, corn gluten meal, corn gluten feed, distillers grains, liquid feed, fuel-grade ethanol (produced and procured from third-party providers) and distillers corn oil. Alto also offers transportation, storage and delivery services through third-party service providers.
This Zacks Rank #2 company with a VGM Score of A is priced at $6.34.
The company clearly had its fortunes turning with the onset of the pandemic. The high demand for alcohol-based hand sanitizers that started during the pandemic and is more likely than not to develop into an enduring trend is the biggest positive for Alto.
Now, to check for risk, we need to take a closer look at its key numbers-
And so, we see that management performance metrics like Return on Equity (ROE, measuring how well investor funds are being utilized) and Return on Assets (ROA, measuring how well assets are being utilized) were steadily declining between March 2017 and March 2020, with a total reversal since then. As a result, both numbers are currently well above 2017 peaks. ROA varies by industry but ROE is generally preferred above 15%. Since Alto’s ROE is currently 15.4%, it passes.
Another thing to check is the balance sheet. Is the company taking on a whole lot of debt to cater to this demand? It is thereby increasing investment risk? Since the Debt-to-Total Capitalization ratio is a mere 17.6%, there’s clearly nothing to worry about in this regard either.
Moving on to its recent performance. Since there is a single analyst providing estimates for this company, it makes sense to see how the company has done historically with respect to these estimates. What we’re seeing is mixed performance, with the solid 141.2% beat in the last quarter coming off an 85.7% miss in the preceding quarter.
This kind of surprise history is often seen in the case of these small companies, and it’s heartening to note that the 4-quarter average is +25.2%. The estimate revision trend also looks encouraging, with the 2021 earnings estimate moving from 5 cents to 44 cents in the last 30 days while the 2022 estimate moved from 82 cents to 93 cents.
Based in Basking Ridge, N.J, Conduent Incorporated is a business process services company. It provides healthcare, digital payments, legal and compliance, human resources, finance and accounting, procurement and digital transformation solutions as well as BPO services and learning services to citizens, patients, customers and employees. The company serves aerospace, defence, automotive services, banking, communication and media, healthcare, industrial, energy, insurance, retail, consumer products and transportation industries.
This Zacks Rank #2 company with a VGM Score of B is priced at $7.87.
Management has done a relatively good job here, given that the ROE has been rising steadily since June 2019 and the ROA since March 2020. While the ROE of 14.1% is a little short of desired, the trend is positive, so this may not be a big risk, especially considering all the other factors.
The Debt-Cap ratio, while substantially higher than the 30-40% range in 2018, is at 51.5%, which is still manageable.
Here too there’s a single analyst offering estimates that have been solidly beaten in the last four quarters at an average rate of 112.7%. The estimate revision trend is also positive: 2021 earnings estimate moving from 59 to 64 cents in the last 30 days with the 2022 estimate going from 61 to 67 cents.
Irving, TX-based Envela Corporation, together with its subsidiaries, is in the jewelry and bullion business. The company deals with consumers, dealers, Fortune 500 companies, municipalities, school districts and other organizations in the United States. It offers bridal, fashion and custom jewelry, fine-watch products, diamonds, other gemstones, watches and jewelry components.
It also buys and sells various forms of gold, silver, platinum, and palladium products, government coins, private mint medallions, art bars, trade unit bars; and numismatic items, such as rare coins, currency, medals, tokens and other collectibles. It also offers jewelry and watch repair services, end-of-life electronics recycling services and various IT services. The company changed its name from DGSE Companies to Envela Corporation in December 2019.
The Zacks Rank #2 company with a VGM Score of B is currently trading at $5.37.
At 43.7%, the ROE is clearly attractive and indicates that management is doing a commendable job.
The debt-cap ratio of 40.2% also isn’t much of a concern. Moreover, it has been declining since June 2019, which is encouraging.
As far as its recent performance is concerned, ELA has topped estimates in both the last two quarters, for which numbers are available. The 2021 and 2022 EPS estimates remain unchanged over the last 30 days.
Elevate Credit, Inc.
Based in Forth Worth, Elevate Credit offers online credit solutions to non-prime consumers. The company offers online installment loans and lines of credit. Its products include credit building, financial wellness programs, credit reporting, free credit monitoring and online financial literacy videos and tools.
The Zacks Rank #2 company with a VGM Score of A is going for $3.80.
Its ROE of 34.1% is very attractive, as are the trends in ROE and ROA, both of which have been rising since September 2018.
The company has no debt.
Moreover, its recent performance has been stellar, with triple-digit surprises in each of the last three quarters and a high double-digit surprise in the quarter immediately preceding them. Overall, the four-quarter surprise is at 201.3%. Estimates for 2021 and 2022 are unchanged in the last 30 days but they are up from 32 cents to 43 cents and 45 cents to 58 cents, respectively in the last 60 days.
Formed out of an amalgamation of Nokia AB, Finnish Rubber Works Ltd and Finnish Cable Works Ltd., Nokia Corp divested all of its non-telecom ventures in the 1990s. The Finnish telecom equipment provider currently operates through four segments — Mobile Networks, Network Infrastructure, Cloud and Network Services, and Nokia Technologies. It also discloses segment-level data for Group Common and Other.
The Zacks Rank #2 company with a VGM Score A is priced at $5.61.
While its ROE of 12.9% still lags the desired 15%, it’s heartening to note that both ROE and ROA have been rising since March 2019.
Moreover, the Debt-Cap ratio of 26.8% is quite low.
As far as the company’s recent performance is concerned, it has topped estimates in three of the last four quarters and missed in one, clocking an average beat of 215.2%. Estimates for 2021 and 2022 remain unchanged in the last 30 days but are up 6 cents and a penny, respectively in the last 60 days.
One-Month Price Performance
Image Source: Zacks Investment Research
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Image: Bigstock
5 Stocks Under $10 That Are Worth Buying Today
Cheap stocks in investor parlance are those that have an attractive valuation. It may be with respect to sales, or earnings, or book value, or whatever. And it could be relative to the group, or industry, or a benchmark index like the S&P 500. You could be looking for the performance year to date, or you could be looking at the performance over the past year.
But what if you’re looking for something different? What if you’re willing to wait a bit longer on a smaller outlay to generate a similar rate of gains?
One way this could be possible is by buying stocks that are cheap on the pocket, i.e. they have a low dollar value. Since they are priced low, these stocks are likely to belong to smaller companies with a fewer number of analysts covering them. But the risk could still be low if you do your homework and check for the health of the companies.
There are three things that should concern you particularly. The first would be the condition of the balance sheet. Management effectiveness is also important to check since small companies go on to become bigger companies only when they have strong people at the helm. The third thing to check would be the companies’ recent earnings performance. If things look good on all three fronts and there’s a generally positive estimated growth trend, there’s a fair chance of the stock’s outperformance.
At Zacks, we also use the Zacks Rank for stocks (#1 for Strong Buy, #2 for Buy, #3 for Hold, #4 for Sell and #5 for Strong Sell). This ranking system has proved effective in selecting winners for years on end.
When you match the rank with the Zacks Style Score System (for value, growth or momentum), you also get stocks that particularly suit your investment style.
Here are a few examples-
Alto Ingredients, Inc. (ALTO - Free Report)
Known as Pacific Ethanol before Jan 2021, Sacramento, CA-based Alto Ingredients is a producer of specialty alcohols used in mouthwash, cosmetics, pharmaceuticals, hand sanitizers, disinfectants, cleaners, alcoholic beverages, flavor extracts and vinegar. It also supplies essential ingredients like dried yeast, corn gluten meal, corn gluten feed, distillers grains, liquid feed, fuel-grade ethanol (produced and procured from third-party providers) and distillers corn oil. Alto also offers transportation, storage and delivery services through third-party service providers.
This Zacks Rank #2 company with a VGM Score of A is priced at $6.34.
The company clearly had its fortunes turning with the onset of the pandemic. The high demand for alcohol-based hand sanitizers that started during the pandemic and is more likely than not to develop into an enduring trend is the biggest positive for Alto.
Now, to check for risk, we need to take a closer look at its key numbers-
And so, we see that management performance metrics like Return on Equity (ROE, measuring how well investor funds are being utilized) and Return on Assets (ROA, measuring how well assets are being utilized) were steadily declining between March 2017 and March 2020, with a total reversal since then. As a result, both numbers are currently well above 2017 peaks. ROA varies by industry but ROE is generally preferred above 15%. Since Alto’s ROE is currently 15.4%, it passes.
Another thing to check is the balance sheet. Is the company taking on a whole lot of debt to cater to this demand? It is thereby increasing investment risk? Since the Debt-to-Total Capitalization ratio is a mere 17.6%, there’s clearly nothing to worry about in this regard either.
Moving on to its recent performance. Since there is a single analyst providing estimates for this company, it makes sense to see how the company has done historically with respect to these estimates. What we’re seeing is mixed performance, with the solid 141.2% beat in the last quarter coming off an 85.7% miss in the preceding quarter.
This kind of surprise history is often seen in the case of these small companies, and it’s heartening to note that the 4-quarter average is +25.2%. The estimate revision trend also looks encouraging, with the 2021 earnings estimate moving from 5 cents to 44 cents in the last 30 days while the 2022 estimate moved from 82 cents to 93 cents.
Conduent Inc. (CNDT - Free Report)
Based in Basking Ridge, N.J, Conduent Incorporated is a business process services company. It provides healthcare, digital payments, legal and compliance, human resources, finance and accounting, procurement and digital transformation solutions as well as BPO services and learning services to citizens, patients, customers and employees. The company serves aerospace, defence, automotive services, banking, communication and media, healthcare, industrial, energy, insurance, retail, consumer products and transportation industries.
This Zacks Rank #2 company with a VGM Score of B is priced at $7.87.
Management has done a relatively good job here, given that the ROE has been rising steadily since June 2019 and the ROA since March 2020. While the ROE of 14.1% is a little short of desired, the trend is positive, so this may not be a big risk, especially considering all the other factors.
The Debt-Cap ratio, while substantially higher than the 30-40% range in 2018, is at 51.5%, which is still manageable.
Here too there’s a single analyst offering estimates that have been solidly beaten in the last four quarters at an average rate of 112.7%. The estimate revision trend is also positive: 2021 earnings estimate moving from 59 to 64 cents in the last 30 days with the 2022 estimate going from 61 to 67 cents.
Envela Corp. (ELA - Free Report)
Irving, TX-based Envela Corporation, together with its subsidiaries, is in the jewelry and bullion business. The company deals with consumers, dealers, Fortune 500 companies, municipalities, school districts and other organizations in the United States. It offers bridal, fashion and custom jewelry, fine-watch products, diamonds, other gemstones, watches and jewelry components.
It also buys and sells various forms of gold, silver, platinum, and palladium products, government coins, private mint medallions, art bars, trade unit bars; and numismatic items, such as rare coins, currency, medals, tokens and other collectibles. It also offers jewelry and watch repair services, end-of-life electronics recycling services and various IT services. The company changed its name from DGSE Companies to Envela Corporation in December 2019.
The Zacks Rank #2 company with a VGM Score of B is currently trading at $5.37.
At 43.7%, the ROE is clearly attractive and indicates that management is doing a commendable job.
The debt-cap ratio of 40.2% also isn’t much of a concern. Moreover, it has been declining since June 2019, which is encouraging.
As far as its recent performance is concerned, ELA has topped estimates in both the last two quarters, for which numbers are available. The 2021 and 2022 EPS estimates remain unchanged over the last 30 days.
Elevate Credit, Inc.
Based in Forth Worth, Elevate Credit offers online credit solutions to non-prime consumers. The company offers online installment loans and lines of credit. Its products include credit building, financial wellness programs, credit reporting, free credit monitoring and online financial literacy videos and tools.
The Zacks Rank #2 company with a VGM Score of A is going for $3.80.
Its ROE of 34.1% is very attractive, as are the trends in ROE and ROA, both of which have been rising since September 2018.
The company has no debt.
Moreover, its recent performance has been stellar, with triple-digit surprises in each of the last three quarters and a high double-digit surprise in the quarter immediately preceding them. Overall, the four-quarter surprise is at 201.3%. Estimates for 2021 and 2022 are unchanged in the last 30 days but they are up from 32 cents to 43 cents and 45 cents to 58 cents, respectively in the last 60 days.
Nokia Corp. (NOK - Free Report)
Formed out of an amalgamation of Nokia AB, Finnish Rubber Works Ltd and Finnish Cable Works Ltd., Nokia Corp divested all of its non-telecom ventures in the 1990s. The Finnish telecom equipment provider currently operates through four segments — Mobile Networks, Network Infrastructure, Cloud and Network Services, and Nokia Technologies. It also discloses segment-level data for Group Common and Other.
The Zacks Rank #2 company with a VGM Score A is priced at $5.61.
While its ROE of 12.9% still lags the desired 15%, it’s heartening to note that both ROE and ROA have been rising since March 2019.
Moreover, the Debt-Cap ratio of 26.8% is quite low.
As far as the company’s recent performance is concerned, it has topped estimates in three of the last four quarters and missed in one, clocking an average beat of 215.2%. Estimates for 2021 and 2022 remain unchanged in the last 30 days but are up 6 cents and a penny, respectively in the last 60 days.
One-Month Price Performance
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>