In this article, we discuss the 10 best stocks under $20. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best Stocks Under $20.
We prepared this article back in May 2022, when the market crash was just getting started and the Fed had begun its spree of rate hikes. We are publishing this article today and it’d be interesting for the readers to see how these stocks, which looked strong back in May, have performed over these past five months. We had picked these stocks based on long-term growth catalysts, Wall Street analyst ratings and hedge fund sentiment, which we had gauged using the holdings data of 912 elite hedge funds we tracked as of the first quarter of this year.
With each stock, we have mentioned its price on May 25 and its latest price as of November 17. You can easily see the performance of these stocks and how the macroeconomic environment crushed some of these companies. Many of these stocks however indeed were some of the best stocks in hindsight.
Cheap stocks provide investors of all sorts an opportunity to generate attractive returns in a short period of time in an era of surging market values. Investing in such stocks carries some risk, but it is this risk that has distinguished success and failure in the market over the last few years. The inflation rate is touching 40-year highs, while the bond market expects the Federal Reserve to hike interest rates to a range between 2.75% and 3% by the end of this year. In these circumstances, investors are on the lookout for low-priced stocks that can yield healthy returns. As professional investors search out bargains and sell high-flying stocks that have been in demand since the financial crisis, value stocks are giving some relief to investors from the volatility surrounding the economy.
On a total-return basis, the MSCI World Value index has declined roughly 7% in 2022 as of May, significantly less than the 25% drop in the index provider’s growth index. According to Bloomberg statistics, an investing strategy in which traders buy shares in corporations that are cheap compared to indicators like book value and profitability and bet against groupings that are overvalued has yielded returns of about 30% this year. Over the next ten years, Vanguard predicts US value equities will return 4.1%, compared to 0.1% for US growth stocks. Richard Halle, portfolio manager at M&G Investments, stated that despite this shift, many shareholders who had become accustomed to “buying the dip” in the recent past are still debating whether to expand their investment in value equities.
The S&P 500 has lost nearly 10% of its value YTD as of May. The Russia-Ukraine conflict rages on, causing energy markets to be disrupted. Significant interest-rate policy shifts threaten to upend investing strategies that have been lucrative for several years. Although a couple of these firms have had recent problems, resulting in declining stock prices, their fundamental operations remain robust. Given the greater issues confronting every firm on Wall Street, investors should choose high-quality purchases over the newest flashy growth story, irrespective of recent success. Some of the notable stocks on our list of 10 best stocks under $20 include Energy Transfer LP (NYSE:ET), Flex Ltd. (NASDAQ:FLEX), and Magnachip Semiconductor Corporation (NYSE:MX).
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Best Stocks Under $20
10. BBQ Holdings, Inc. (NASDAQ:BBQ)
Stock Price as of May 25: $11.03 (Company acquired for $17.25 per share in August)
Number of Hedge Fund Holders: 5
Update: BBQ Holdings was acquired by MTY Food Group in August for $17.25 per share, or about $200 million in total. This shows BBQ was indeed one of the best stocks to buy back in May as its stock price at that time had a significant upside.
BBQ Holdings, Inc. (NASDAQ:BBQ) is a Hopkins, Minnesota-based parent company to casual and fast dining restaurants like Baker’s Square, Clark Crew BBQ, Granite City, Famous Dave’s, Real Urban BBQ, and Village Inn. The broad range of subsidiary restaurant brands gives BBQ Holdings, Inc. (NASDAQ:BBQ) a hedge against the changing tastes of the consumer.
During Q1 2022, BBQ Holdings, Inc. (NASDAQ:BBQ) reported revenue of $64.18 million, reflecting an increase of 72% YoY and outperforming the consensus estimate of $55.48 million by $8.7 million or 15.68%. BBQ Holdings, Inc. (NASDAQ:BBQ) relies on royalty and license revenue, characterized by high margins and recurring revenue business. The revenue segment of BBQ Holdings, Inc. (NASDAQ:BBQ) is expected to generate around $18.5 million annually at a relatively conservative P/S multiple of 10x, which gives the business a value of over $185 million. Other competitors are trading at a P/S ratio of 17x to 18x. On a per-share basis, this translates into roughly $18, which reflects a potential upside of 63% from the stock’s previous closing price.
Of the 912 hedge funds in Insider Monkey’s database, five funds held a stake in BBQ Holdings, Inc. (NASDAQ:BBQ) as of Q1 2022. Wexford Capital was the leading investor in BBQ Holdings, Inc. (NASDAQ:BBQ) during the first quarter of 2022, with a stake worth over $25.5 million.
9. Ford Motor Company (NYSE:F)
Stock Price as of May 25: $12.42
Stock Price as of November 17: $13.90
Number of Hedge Fund Holders: 46
Ford Motor Company (NYSE:F) is a Dearborn, Michigan-based automobile manufacturing firm.
The stock took a beating as investors were unconvinced regarding the company’s ability to meet its target of 15% YoY growth in wholesale vehicle volumes in 2022. In 2021, Ford Motor Company (NYSE:F) delivered 3.9 million vehicles, and the 15% growth rate assumes a total vehicle delivery target of 4.485 million. During Q1 2022, Ford Motor Company (NYSE:F) delivered 966,000 vehicles despite the supply chain disruptions resulting in the shortage of various raw materials for automobile manufacturing. This translates into an annual rate of 3.864 million vehicles. The company has the potential to rise as a market leader in the EV truck segment through its F-150 Lightning. Ford Motor Company (NYSE:F) intends to increase its annual production of Ford F-150 Lightning from 80,000 units in 2022 to 150,000 units in 2023. Interestingly, Tesla, Inc. (NASDAQ:TSLA) is not expected to enter this market until 2023.
Ford Motor Company (NYSE:F) has an order book of over $17 billion in the US. There were already 200,000 orders for the F-150 Lightning by December 2021, and the backlog can be expected to rise as 78% of all vehicles sold in the US were light trucks.
Overall, 46 hedge funds reported having a stake in Ford Motor Company (NYSE:F) at the end of Q1 2022.
8. Palantir Technologies Inc. (NYSE:PLTR)
Stock Price as of May 25: $7.55
Stock Price as of November 17: $8.06
Number of Hedge Fund Holders: 36
Palantir Technologies Inc. (NYSE:PLTR) is a Denver, Colorado-based software corporation that specializes in big data analytics. The company is one of the growth stocks that has crashed due to the broader market sell-off. The stock is presently trading at five times forward P/S multiple despite anticipating a 30% YoY revenue growth till 2025. Even legacy tech stocks like Microsoft Corporation (NASDAQ:MSFT) are trading at a forward P/S ratio of eight times. Meanwhile, high-growth tech stocks like NVIDIA Corporation (NASDAQ:NVDA) are trading at a forward P/S multiple of 12 times. This means that Palantir Technologies Inc. (NYSE:PLTR) should command a forward P/S ratio of seven to nine times. The company broadened its customer base by 17% on a sequential basis by adding 40 clients during Q1 2022.
In the last 12 months, Palantir Technologies Inc. (NYSE:PLTR) has increased its customer base by 86%. The increase in customers reflects that the company is not reliant on a few entities to generate its revenue. Palantir Technologies Inc. (NYSE:PLTR) also secured a $30 million contract from the Defence Logistics Agency. Given the expansion in the P/S multiple and the strong growth outlook, the stock price of Palantir Technologies Inc. (NYSE:PLTR) can be expected to appreciate significantly in the next few years.
Tao Value shared its stance on Palantir Technologies Inc. (NYSE:PLTR) in its Q4 2021 investor letter. Here’s what the investment management firm said:
“We have no new position this quarter and have made below changes to our portfolio. We also sold Palantir (PLTR) as I identified it subject to high retail bubble risk (using above method) and are not part of our core “Mindful Compounder” holdings.”
7. Mitek Systems, Inc. (NASDAQ:MITK)
Stock Price as of May 25: $8.72
Stock Price as of November 17: $11.01
Number of Hedge Fund Holders: 15
Mitek Systems, Inc. (NASDAQ:MITK) is a Chesterfield, Missouri-based corporation that provides digital identity verification and mobile check deposits platform. The checking deposit division generates 63% of the company’s revenue, while the digital identity verification segment generates the remaining.
COVID-19 has accelerated the adoption of mobile checking deposits, and Mitek Systems, Inc. (NASDAQ:MITK) has a 98% market share in the industry. People have deposited over 4 billion checks through the Mitek platform, and the company has 36 patents related to the mobile checking deposit industry. The monopoly gives Mitek Systems, Inc. (NASDAQ:MITK) the power to control its pricing. The company has been raising its prices for eight of the last nine quarters.
Mitek Systems, Inc.’s (NASDAQ:MITK) digital identity verifications solutions division has a market share of 20% to 25%. The size of the digital identity verification industry stands at $7.6 billion and is expected to double by 2025. Gig-economy companies like Airbnb, Turo, and Instacart are also included in Mitek’s services.
At the end of Q1 2022, Mitek Systems, Inc.’s (NASDAQ:MITK) was held by 15 hedge funds, up from 13 in the previous quarter. Blue Grotto Capital was long over 2 million shares of Mitek Systems, Inc.’s (NASDAQ:MITK) during Q1 2022.
6. JetBlue Airways Corporation (NASDAQ:JBLU)
Stock Price as of May 25: $10.18
Stock Price as of November 17: $7.29
Number of Hedge Fund Holders: 29
JetBlue Airways Corporation (NASDAQ:JBLU) is the biggest airline in North America in terms of passengers carried. The Long Island, New York-based low-cost airline, has turned hostile in the acquisition of Spirit Airlines, Inc. (NYSE:SAVE). The move would help JetBlue Airways Corporation (NASDAQ:JBLU) eliminate a competitor that operates on similar routes and will give JetBlue Airways Corporation (NASDAQ:JBLU) more pricing power. Furthermore, the acquisition will enable JetBlue to strengthen its position on the East Coast and particularly in Florida, an in-transit hub for most flights going to South America and the Caribbean.
In Q1 2022, JetBlue Airways Corporation (NASDAQ:JBLU) beat the analysts’ forecasted EPS of -$0.80 by $0.07. Moreover, the company also surpassed the revenue estimates by $4.12 million.
Overall, 29 hedge funds held a stake in JetBlue Airways Corporation (NASDAQ:JBLU) as of Q1 2022, down from 34 in the preceding quarter.
In addition to JetBlue Airways Corporation (NASDAQ:JBLU), stocks such as Energy Transfer LP (NYSE:ET), Flex Ltd. (NASDAQ:FLEX), and Magnachip Semiconductor Corporation (NYSE:MX) are also on our list of the 10 best stocks under $20.
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Disclose. None. 10 Best Stocks Under $20 is originally published on Insider Monkey.