First things first: Cheap stocks are not necessarily better stocks.
"False promises of quick and painless riches are easier to fall for when an investment can be made with so little money up front," writes Dan Burrows, senior investing writer at Kiplinger.com. "An investor might think, 'How risky could it be?'"
The answer, Burrows says, is plenty. "Per the Securities and Exchange Commission: 'Academic studies find that OTC [over-the-counter] stocks tend to be highly illiquid; are frequent targets of alleged market manipulation; generate negative and volatile investment returns on average; and rarely grow into a large company or transition to listing on a stock exchange.'"
Why should I buy cheap stocks?
But with the turbulence the broader market has seen over the last year or so, many investors have seen their portfolios decline in value. And one opportunity that comes from a less favorable environment on Wall Street is the presence of more cheap stocks.
While Burrows was referring specifically to penny stocks, the same argument can be made on cheap stocks under $10. These names tend to be risky and volatile, and are often facing weak fundamentals. Still, others love cheap stocks for their affordability factor and their ability to reap big gains in a short period of time (though, this also means investors can suffer big losses in a hurry).
If you are interested in cheap stocks, it's vital to do your research beyond just looking at the latest print for prices. You need to take a hard look at risk metrics, recent performance and future outlook in order to invest responsibly.
How we chose the best cheap stocks to buy
I have written extensively about capital markets, Wall Street and investing since 2008. So when I compiled this list of cheap stocks, I focused on companies that are traded on major exchanges vs over-the-counter penny stocks, which tend to be riskier. Additionally, this list includes stable low-priced stocks with healthy dividends, as well as tech companies with growth potential in a digital age. And some are simply bargains after recent declines.
With that in mind, here are six cheap stocks under $10 to consider.
But remember, cheap stocks move quickly, so if you decide to invest in them at all, do so in small amounts that you can afford to lose.
Data is as of December 19. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
ASE Technology Holding Co.
- Market value: $19.8 billion
- Dividend yield: N/A
Semiconductor stocks took it on the chin a few years back amid supply-chain disruptions. Headwinds remained after a 2022 U.S. Department of Commerce ruling restricted exports to China. However, it's important to understand that those troubles emerged after significant long-term growth for the semiconductor industry – and chipmakers have rebounded in fantastic fashion in 2023.
Consider the popular iShares Semiconductor ETF (SOXX), which holds the biggest names in the sector. The fund is up more than 60% for the year-to-date. And over the past five years, it has posted a total return (price change plus dividends) of 293% vs the S&P 500's total return of 107% in the same period.
Taiwan-based ASE Technology Holding Co. (ASX, $9.17) is not a big-name, branded chipmaker like an Intel (INTC) or a Nvidia (NVDA) that might be the first names that spring to mind for investors. But recently, ASE has outperformed its peers, as well as the broader S&P 500, with shares that up nearly 44% in the last 12 months. That's because ASE is involved in services like packaging and testing circuits and doesn't design specialty semiconductors on its own the way these bigger names do.
It's a lower-margin business, but that means ASE doesn't have to sweat the research side or the marketing of patented semiconductors and therefore offers more stability. Many of the cheap stocks out there in the tech sector can be risky, so ASE's unique business model makes it stand out.
- Market value: $264.7 million
- Dividend yield: 5.2%
NL Industries (NL, $5.42) has a long and complex history. Formerly known as the National Lead Company, the smelting company was one of the 12 original stocks included in the Dow Jones Industrial Average in the late 1800s. It eventually got into the paint game – with lead paint before the health risks were well known, and then eventually via titanium dioxide pigments that are known for their brilliant white finish on appliances, cars and other goods.
NL is still in the machined metals game, with a subsidiary that manufactures exhaust systems, gauges, throttle controls and other hardware for the marine industry. It also has a security products business that focuses on various locks, cabinets and other products.
NL Industries, tied to cyclical manufacturing trends and with a modest market cap of just $265 million in market value, is certainly one of the riskier bets on this list of cheap stocks. Indeed, the industrial stock is down about 14% in the last 12 months, compared with a total return of 10% for the S&P 500 in the same period. However, it's total return in the last 36 months is around 33%, on par with the broad market.
- Market value: $6.2 billion
- Dividend yield: 2.1%
ADT (ADT, $6.76) debuted as a public company in 2012 as a spinout from industrial conglomerate Tyco to gain capital efficiencies and focus on its unique business model. But over the last decade or so, there hasn't been particularly huge growth for the security stock – particularly in the age of connected devices and doorbell cams, which many feel are adequate replacements for traditional home security systems.
But ADT has evolved, too, partnering with Alphabet's (GOOGL) Google Nest technology instead of trying to outdo its high-tech competitors. In fact, the ADT/Google deal announced in 2020 was backed by a $450 million ownership stake that equates to just under 7% of the company.
ADT might not knock your socks off with surging revenue, but it has what it takes to deliver steady growth over time. Plus, analysts expect the company to report earnings per share growth of 67% this fiscal year and 25% in fiscal 2024.
This fundamental strength, due in part to solid customer retention and recurring monthly revenue balances, is why ADT is on this list of the best cheap stocks to buy now.
- Market value: $21.0 billion
- Dividend yield: 2.0%
When it comes to cheap stocks, satellite radio service provider Sirius XM Holdings (SIRI, $5.45) is an interesting one to consider because of two big advantages it holds over traditional media companies. First, it's a legal monopoly, with no realistic alternatives beyond terrestrial radio or using your cellphone. That means those who have come to rely on SIRI tend to be very sticky customers – as evidenced by the fact the company hiked its subscription costs for in-car services earlier this year.
The second is that Sirius XM's operating model is not ad-driven – which allows it to forgo the army of salespeople used by traditional broadcasters and instead focus on on-air talent. Consider that even after the acquisition of Pandora Media back in 2019, only about 20% of Sirius XM's $9 billion in fiscal 2022 revenue last year came from advertising. That lends reliability to operations, particularly if you think the U.S. economy may be at risk of recession in the coming months.
Last but not least, the communications services stock has a commitment to shareholder value that includes a solid capital-return program. It's doling out a 2.0% regular yield on top of a special 2022 distribution and consistent stock buybacks on top of that.
Organic revenue growth for SIRI has admittedly been slow going, but there's a lot to like about this company thanks to its unique business model and a robust listenership of some 34 million subscribers and counting.
- Market value: $1.8 billion
- Dividend yield: N/A
Payment and e-commerce platform provider Payoneer Global (PAYO, $4.92) is a small-cap stock in the tech sector valued at about $1.8 billion. It's currently on pace to post a 23 cents per-share profit in fiscal 2023 vs a per-share loss last year, which is impressive given the company didn't exist until 2005 and only became publicly traded in 2021.
Amid the rise of mobile and cashless transactions, PAYO has a great long-term tailwind for its business. The firm is not like consumer-facing brand PayPal Holdings (PYPL), and instead is focused on B2B payment operations. Specifically, Payoneer's technology is built for international payments, managing a digital business, or accessing capital to open up new opportunities. Its cross-border payment solutions support an ecosystem of marketplaces in approximately 190 countries and territories worldwide.
There's assuredly risk here if we hit a widespread downturn in global spending, and thus reduced transaction volume. But PAYO, one of Wall Street's best cheap stocks to buy, could have a very bright future in a digital age. In 2022, it hired former Alibaba.com (BABA) executive John Caplan as its CEO, and it is looking to expand even further in the years ahead.
In August, Payoneer reported strong top-line growth of 40% on a year-over-year basis. It hit the mark again in November, reporting 31% year-over-year Q3 revenue growth. Looking forward, PAYO expects growth to continue in the 30% range, which bodes well for investors seeking out the best cheap stocks to buy.
Needham analyst Mayank Tandon (Buy) seems to agree. "Given PAYO's large global network and diverse product suite, we believe the company is well-positioned to become the leading cross-border payments platform for commercial and freelance/gig-workers looking for cross-border payment solutions," Tandon writes in a note to clients.
- Market value: $2.5 billion
- Dividend yield: 11.7%
Prospect Capital (PSEC, $6.15) regularly pops up on lists of the best cheap stocks for income investors. This company has a reputation for its internal investment prowess – which makes it a natural vehicle for other outside investors looking to share in its success.
PSEC is a business development company. BDCs function more like a private equity firm or hedge fund than your typical financial stock, taking in cash and then redeploying it wherever it thinks it can get the best return. All told, the company commands about $9 billion in assets under management. That cash is primarily invested in mid-sized corporations with less than $150 million in annual profits. This means they are "goldilocks" operations: not so big they require very deep pockets, but not so small a single executive departure or outside disruption can ruin things.
What's more, PSEC has made a business out of financing troubled companies that may not find it easy to get capital elsewhere. This is a bit of a risky proposition, but can result in windfall profits when things work out. Plus, its portfolio includes includes 130 companies spread across 37 separate industries, including packaged foods, healthcare, software and machinery. This provides investors with deep diversification to help smooth out any bumps in the road.
Shares have more or less tracked the market over the last year or two. But PSEC is a monthly dividend stock that yields 11.7%, which makes the total return of this BDC worth a look.
Jeff Reeves writes about equity markets and exchange-traded funds for Kiplinger. A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, the Wall Street Journal digital network, USA Today and CNN Money.
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