Five cheap stocks to buy for $20 or less

By Dan Burrows
Posted on March 09, 2018

Stocks with low share prices can be a cost-effective way for small investors to diversify their portfolios. But even after a bumpy few weeks, the market remains near all-time highs and is as expensive as ever, making quality cheap stocks more and more difficult to find.

Before a rising market tide lifted almost all boats, it wasn’t too tough to find stocks for less than $10 that offered an acceptable balance of risk and reward.

Now, with the Dow bouncing between 25,000 and 26,000, investors should probably raise that limit to $20, just to be safe. Any stock still languishing below $10 likely often comes with an extra heap of risk (as we’ll see in one case), and can risk losing the benefit of institutional buying from entities such as mutual funds.

It’s easy to see the appeal of stocks for $20 or less, especially if you don’t have a lot of money left over to invest after you pay bills and pad your emergency fund.

However, many low-priced stocks are priced that way for a reason, so you need to be particularly discerning when you try to pick stocks that go for $20 or less.

Is it risky? Sure. Don’t plow your life’s savings into a stock simply because it seems cheap. But you should take a chance on a promising stock when you can snag it at a bargain price.

Let’s take a look at five such cheap stocks trading for $20 or less (prices as of February 21, 2018):

Callaway Golf Company

Market value: $1.4 billion

Dividend yield: 0.3 percent

Analysts’ opinion: 8 strong buy, 0 buy, 3 hold, 0 sell, 1 strong sell

The game of golf might not be growing like it once was, but it’s still a massively popular pastime and a big business. Indeed, there are 24 million golfers in the U.S., contributing to what amounts to a $70 billion global industry.

Shares in Callaway Golf Company (ELY, $15.53) are a low-cost, pure-play bet on the game, and analysts are mostly bullish on its fortunes.

Callaway, for the uninitiated, is a golf equipment, clothing and accessories maker with a reach of more than 70 countries. It’s one of the top sponsors in the sport, boasting PGA names such as Phil Mickelson, Henrik Stenson and Sergio Garcia.

Analysts surveyed by Thomson Reuters expect Callaway’s earnings to expand by 22 percent next year, and at an average annual rate of 31 percent for the next five years. That sort of growth makes ELY shares, which currently trade for 24 times expected earnings, look like a bargain.

Graphic Packaging Holding Company

Market value: $4.9 billion

Dividend yield: 1.9 percent

Analysts’ opinion: 7 strong buy, 0 buy, 1 hold, 0 sell, 0 strong sell

Graphic Packaging Holding Company (GPK, $15.02) is one of the largest makers of folding cartons and paper-based packaging for the food and food-services industries.

And a transformative deal has it poised for outsized growth in the future. The company kicked off the year by completing its merger with International Paper’s (IP) North America Consumer Packaging business. GPK now owns 80 percent of the combined company.

As a result, analysts expect the company’s revenue to soar 46 percent in 2018. Longer-term, Wall Street’s pros think GPK can deliver average earnings growth of 21 percent a year for the next half-decade.

With shares going for just 17 times expected earnings, Graphic Packaging could be a steal at current levels.

Huntington Bancshares

Market value: $17.1 billion

Dividend yield: 2.7 percent

Analysts’ opinion: 9 strong buy, 1 buy, 9 hold, 0 sell, 0 strong sell

Regional banks are among stocks that should benefit from Republicans’ tax overhaul, as their almost entirely domestic operations have long resulted in high effective tax rates around 30 percent on average. That will drop to 21 percent.

Good news for Huntington Bancshares (HBAN, $15.53), which already delivered revenue gains, lower provisions for loan losses, and continued growth in both loans and deposits when it posted quarterly results on Jan. 23. Results matched Wall Street’s estimates and helped goose a stock that’s been hot of late.

Shares in Huntington are up 12 percent over the past month vs. a gain of 4 percent for the Standard & Poor’s 500-stock index.

“The company has a solid franchise in the Midwest, and is focused on capitalizing on its growth opportunities,” note analysts at Zacks Equity Research, who caution that rising costs and unstable credit metrics pose challenges, but still rate shares at “Buy.”

“We remain optimistic about the company’s several strategic actions, including acquisitions and consolidation of branches.”

Nabors Industries

Market value: $2.4 billion

Dividend yield: 2.9 percent

Analysts’ opinion: 10 strong buy, 0 buy, 8 hold, 0 sell, 0 strong sell

For a higher-risk, higher-reward bet on recovery in the oil patch, look no farther than Nabors Industries (NBR, $6.49), the only sub-$10 name on this list. Nabors is one of the largest land drillers in the country, and is thus highly sensitive to oil prices.

Happily for investors, benchmark West Texas Intermediate crude oil prices have climbed from the low $40s in mid-2017 to around $65 per barrel currently. That includes a roughly 10 percent improvement so far this year.

SLM Corporation

Market value: $4.9 billion

Dividend yield: N/A

Analysts’ opinion: 7 strong buy, 0 buy, 0 hold, 0 sell, 0 strong sell

SLM Corporation (SLM, $11.06), the student-loan company best-known as Sallie Mae, is on the cusp of a growth spurt, analysts say. That should drive market-beating returns.

Wall Street’s experts, on average, forecast revenue growth of 19 percent this year and 15 percent in 2019, according to data from Thomson Reuters. Earnings are projected to rise at an average annual rate of nearly 26 percent over the next half-decade.

“We believe improving economic conditions and lower tax rates will assist Sallie Mae in maintaining its leading position in the student lending market,” Zacks analysts said. Meanwhile, at Credit Suisse, which rates shares at “Outperform,” Moshe Orenbuch and James Ulan believe the company has “superior growth for the next several years.”

With SLM shares trading at less than 10 times expected earnings, it’s possible the market still is undervaluing the company’s growth prospects.