In this piece, we will take a look at 11 dirt cheap stocks to buy. If you want to skip our coverage of the current economic environment, then take a look at 5 Dirt Cheap Stocks To Buy.
When compared to the optimism that surrounded stocks earlier this year after a strong run during the first half of 2023, the second half is relatively quieter. As opposed to the remainder of the Federal Reserve’s interest rate hiking sector and artificial intelligence that dominated sentiment in H1, the second half is different. With weeks left until the Federal Reserve decides to raise interest rates by 25 basis points again or keep them at current levels, questions about the state of the economy and the duration of high interest rates are key questions that could determine where markets are heading moving forward.
Talking about valuation, one of the biggest stocks this year has been the graphics processing unit (GPU) designer NVIDIA Corporation (NASDAQ:NVDA). NVIDIA’s shares are up 238% year to date, effectively more than doubling any investment made earlier this year. Much of NVIDIA’s valuation is based on the revenues that the market expects it to capture in an enterprise computing market shifting towards artificial intelligence. The market believes that NVIDIA can grow its earnings by quite a lot because of superior products for the budding AI market, but there are some quarters that speculate that the firm could be overvalued. Overvaluation is when the share price of a firm is significantly higher than its ability to earn revenue and generate a profit. Chip firms are typically valued at 54 times their earnings, and this has been pushed up by the recent downturn in the chip sector that has led to earnings drops as manufacturers struggle between balancing revenue and keeping costs low. NVIDIA’s trailing P/E ratio is 117, helped by the massive increase in its share price.
The main measure through which a stock is evaluated for its value is the price to earnings ratio. This determines whether a stock is expensive or cheap, and profitable companies that have low share prices respective to their earnings are often considered cheap. However, these categorizations of value shift when a firm is analyzed and compared with its industry peers. Different industries have different price to earnings ratios, and a firm can be cheap when compared to its peers but expensive in relation to other companies in different sectors or industries. Companies with low P/E ratios typically operate in mature sectors or have mature business models that are unlikely to aggressively pursue market share. On the flip side, for companies in growing sectors such as technology and electric vehicles, the ratio is higher as investors start to factor in future growth potential in the current price.
Cautionary voices warning about overvalued stocks were quite common as the S&P 500 and NASDAQ soared earlier this year, as some investors were wary that share prices were higher simply due to market euphoria about falling inflation and a robust economy. By the end of June, the S&P500 was trading at 19 times its forward earnings, which is higher than the 15.6 historical average, leading Goldman Sachs to speculate that a draw down can come into play now if we take history as an example. This sentiment was echoed by Wells Fargo, which downgraded the technology sector to Neutral. A similar trend was present in the NASDAQ 100, which had been one of the best performing stock indexes this year. The NASDAQ was trading at 27 times price to forward earnings, also higher than the 19.3 times historical average.
With the backdrop of lofty valuations in play, it appears that investor sentiment is shifting toward short term economic performance as well. U.S. non farm unemployment stood at 3.8% in August, leading some to worry that perhaps the economy might be slowing down a bit too much. Others believe that the higher unemployment is due to more labor market participation, and the economy is likely to see a soft landing rather than a recession in the wake of the Federal Reserve’s rapid interest rate hiking cycle.
Considering that valuations are quite important these days, we decided to take a look at some dirt cheap stocks to buy. The stocks that top this list are W&T Offshore, Inc. (NYSE:WTI), Community Health Systems, Inc. (NYSE:CYH), and Baytex Energy Corp. (NYSE:BTE).
Our Methodology
To compile our list of the best dirt cheap stocks to buy, we made a list of the 18 stocks with the lowest price to trailing earning ratios, a market capitalization greater than $300 million, a share price less than $5, and an average analyst share rating of Buy or better. The stocks were then ranked through their price to forward earnings ratio, and the 11 lowest were sorted through the number of hedge funds that had bought their shares as of Q2 2023 for the list of the best dirt cheap stocks to buy.
11 Dirt Cheap Stocks To Buy
11. Banco Itaú Chile (NYSE:ITCL)
Latest P/E Ratio: 4.82
Latest Share Price: $3.61
Banco Itaú Chile (NYSE:ITCL) is a Chilean regional bank headquartered in Santiago de Chile, Chile. It is one of the older firms on our list, having been set up in 1871, and has operations in Columbia and Chile. A subsidiary of Itau Chile, the majority shareholder is currently seeing friction from minority shareholders after a bid to increase its stake in Banco Itaú Chile (NYSE:ITCL).
By the end of this year’s second quarter, one hedge fund out of the 910 polled by Insider Monkey had held a stake in Banco Itaú Chile (NYSE:ITCL). It joins W&T Offshore, Inc. (NYSE:WTI), Community Health Systems, Inc. (NYSE:CYH), and Baytex Energy Corp. (NYSE:BTE) in our list of the best dirt cheap stocks to buy.
10. Diana Shipping Inc. (NYSE:DSX)
Latest P/E Ratio: 4.52
Latest Share Price: $3.62
Diana Shipping Inc. (NYSE:DSX) is an ocean shipping company with more than 40 vessels in its fleet. After a series of three consecutive analyst EPS earnings beats, the firm missed the estimates for its second quarter earnings. The stock is rated Buy on average and its stock is down 2% year to date.
As of June 2023, seven hedge funds among the 910 part of Insider Monkey’s database were the firm’s investors. Out of these, Diana Shipping Inc. (NYSE:DSX)’s largest shareholder is Jeremy Hosking’s Hosking Partners since it owns 4.2 million shares that are worth $15.5 million.
9. LexinFintech Holdings Ltd. (NASDAQ:LX)
Latest P/E Ratio: 2.02
Latest Share Price: $2.65
LexinFintech Holdings Ltd. (NASDAQ:LX) is a Chinese financial technology firm that offers lending products and services. It is one of the few stocks on our list with a significant stake by retail investors, as the latest estimates show that more than a third of its shares are owned by them.
After digging through 910 hedge funds for their June quarter of 2023 investments, Insider Monkey discovered that nine had bought a stake in LexinFintech Holdings Ltd. (NASDAQ:LX). D. E. Shaw’s D E Shaw is the company’s biggest investor, courtesy of its $1.9 million stake.
8. Intuitive Machines, Inc. (NASDAQ:LUNR)
Latest P/E Ratio: 5.84
Latest Share Price: $4.89
Intuitive Machines, Inc. (NASDAQ:LUNR) is an American firm with an eye on the future as it makes and sells products that are used in lunar exploration. The firm scored a win in August when it disclosed a $20 million investment by an institutional investor.
Insider Monkey took a look at 910 hedge funds for their second quarter of 2023 shareholdings and found ten Intuitive Machines, Inc. (NASDAQ:LUNR) investors.
7. Enel Chile S.A. (NYSE:ENIC)
Latest P/E Ratio: 2.89
Latest Share Price: $3.28
Enel Chile S.A. (NYSE:ENIC) is a subsidiary of the global energy giant Enel and it generates and provides power in Chile. Out of its four latest quarters, the firm has beaten analyst EPS estimates for three. The shares are rated Strong Buy on average, and the shares are up 49% year to date, for convincing performance even as the energy sector faltered this year.
During June 2023, ten hedge funds out of the 910 surveyed by Insider Monkey had bought the firm’s shares. Enel Chile S.A. (NYSE:ENIC)’s largest stakeholder is Israel Englander’s Millennium Management due to its $10.7 million investment.
6. VAALCO Energy, Inc. (NYSE:EGY)
Latest P/E Ratio: 2.85
Latest Share Price: $4.39
VAALCO Energy, Inc. (NYSE:EGY) is an American oil and gas exploration and production firm with operations in West African countries. Its has had a horrible year on the earnings front so far by having missed analyst EPS estimates in all four of its latest quarters.
Insider Monkey’s Q2 2023 survey of 910 hedge funds revealed that 11 had invested in VAALCO Energy, Inc. (NYSE:EGY). Out of these, the company’s biggest hedge fund shareholder is George Baxter’s Sabrepoint Capital since it owns 2.7 million shares that are worth $10.1 million.
W&T Offshore, Inc. (NYSE:WTI), VAALCO Energy, Inc. (NYSE:EGY), Community Health Systems, Inc. (NYSE:CYH), and Baytex Energy Corp. (NYSE:BTE) are some dirt cheap stocks seeing strong hedge fund interest.
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Disclosure: None. 11 Dirt Cheap Stocks To Buy is originally published on Insider Monkey.