5 Cheap Stocks Ready to Take Off
To find bargains in the stock market, you often have to go where investors fear to tread. That’s especially true in the current bull market, which has seen share prices triple, on average, since stocks bottomed in March 2009.
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To identify cheap stocks, we specifically looked for names that are trading far below their 2011 peaks, when the latest charge of the bull market began. We found five especially attractive companies. All of them face big challenges, so the stocks are risky. But that risk comes with the potential for hefty payoffs if it turns out that investors have been too pessimistic about the companies’ prospects. (Prices and other data are through April 30.)
Ambitious Chip Maker
If you invested in tech the past few years, you probably made out well—unless you owned shares of Broadcom (symbol BRCM). The Irvine, Cal., firm, a powerhouse in semiconductors for wireless devices, TV set-top boxes and other applications, has been spending big to develop new chips to take on wireless-tech kingpin Qualcomm. Broadcom wants to smash Qualcomm’s dominance in “baseband” technology, which is at the heart of wireless phones, as the industry moves to the next generation of faster chips.
Critics say Broadcom is fighting an unwinnable war against Qualcomm, wasting much of its research spending in the effort. The firm has shelled out $8.6 billion since 2010, and that has helped depress earnings. Profits fell to 86 cents per share last year, from $1.25 in 2012, even as sales rose 4%, to a record $8.3 billion.
But bulls say the market is underestimating Broadcom’s firepower across the broad spectrum of tech “connectivity”—the linking of everything electronic in the years to come. The company likes to say that 99.98% of all Internet traffic now crosses at least one Broadcom chip. As for the Qualcomm challenge, analysts at brokerage Jefferies Group see it as a win-win situation: Broadcom has reached the point at which it will either succeed soon, fueling earnings growth, or pull the plug and save a bundle on further research.
A Bet on Canadian Energy
Western Canada is loaded with oil, but that crude has run into transportation bottlenecks getting to the U.S. and other markets in recent years. The result: depressed prices for Canadian energy—and for stocks of energy producers such as Canadian Natural Resources (CNQ).
The situation began to change late last year with the opening of new rail transport lines. Construction of new pipelines will also help. Energy companies north of the border would get an especially large boost if the Obama administration were to approve the controversial Keystone XL pipeline, which would take western Canadian oil to ports on the Gulf of Mexico. (It appears that President Obama won’t make a final decision until after the November elections.)
A rise in Canadian oil prices this year has helped lift Canadian Natural Resources’ shares lately. But analysts at brokerage Canaccord Genuity say the stock price doesn’t yet reflect the improved outlook. In a sign that executives are confident about the future, the company—which last year earned $2.1 billion, or $1.89 per share, on revenues of $16.3 billion—boosted its quarterly dividend by 12.5% in March, after hiking it 60% in November (figures are in U.S. dollars). Brokerage RBC Capital, which calls Canadian Natural its favorite oil-and-gas producer, sees the company as a major long-term beneficiary of more western Canadian crude making its way to global markets.