5 Best Cheap Stocks to Buy Under $5
Investors have a variety of stocks that they can invest in. One lucrative part of the market is stocks trading under $5 per share.
These stocks are typically “off limits” to big investors like hedge funds. The price is simply too low. However, once a fast-growing company does move over $5 per share, suddenly they’re able to buy.
Sub-$5 stocks can not only offer investors a good entry price, but can enter a good entry value. Many high-growth stocks start as such inexpensive stocks. And many great brands can sometimes trade at a low price.
We’ve identified a combination of five cheap stocks that all trade for under $5 per share. These stocks offer a strong value with high growth potential moving forward.
Cheap Stock Under $5 #1: Chegg (CHGG)
Direct-to-student learning platform Chegg has struggled over the past year. The company fell behind on the AI race. That created a slowdown in subscriber growth, a trend the market didn’t like. While revenues declined 11% year-over-year, the market sent shares down over 80%.
That could be an overreaction at this point. Chegg is working to turn around, and has even come to embrace AI tools. Given their strong brand in student learning, the addition of low-cost AI services could spur a turnaround. By the time the company starts to report a rebound in subscriber growth, it may be too late to get shares at an inexpensive price.
Chegg shares are a value play today, trading at about 0.26 times their price-to-sales ratio, and half their book value. And with a gross profit margin of 67%, a turnaround could be huge for shareholders.
Cheap Stock Under $5 #2: Diana Shipping (DSX)
Global shipping has gotten a bad rap in recent years. That’s because shipping can provide a snapshot for the economy as a whole. Currently, investors are softening on shipping stocks, largely because oil shippers are seeing lower volumes.
But for dry bulk shippers, like Diana Shipping, the baby may be thrown out with the bathwater. Shares trade at an incredible three times forward earnings, as shares have been knocked down in sympathy with oil shippers.
In addition to trading at a low valuation, the shipper pays out a considerably high dividend, over 12% at current prices. Based on their current and forward earnings, that dividend is sustainable, meaning shares could be substantially undervalued today, and investors seeking income may bid up shares from here.
Cheap Stock Under $5 #3: Hertz Global (HTZ)
Vehicle rental and leasing giant Hertz Global (HTZ) made the mistake of investing heavily in electric vehicles, anticipating major demand for these vehicles as rentals. That didn’t happen.
So, Hertz has had to report some significant losses to ditch its EV rollout. Shares are also down thanks to the challenge from other rental agencies.
However, shares trade at half their book value, which likely indicates a significant discount to the value of their fleet. Plus, Hertz shares trade at about 0.1 times their price to sales and 12 times forward earnings, two additional signs that shares are substantially undervalued. Once Hertz puts its failed EV initiative in the rear-view mirror, shares should be poised for a massive move higher.
Cheap Stock Under $5 #4: Shoals Technologies (SHLS)
Solar technology component producer Shoals Technologies (SHLS) is facing some short-term headwinds. Solar technology continues to improve and get rolled out, but investor interest is currently on the wane.
Even with those headwinds, Shoals has a three-year revenue growth rate of 15.5%, far ahead of other solar companies that have shrunk over the past few years. Plus, with shares trading at 11 times forward earnings, Shoals looks attractive. More importantly, Shoals is based out of the United States, meaning it can avoid tariffs and other protectionist measures that foreign solar producers face.
That could set up Shoals to continue its long-term growth trajectory, and investors who buy while the sector is out of favor now could see big returns.
Cheap Stock Under $5 #5: Tetra Technologies (TTI)
Oil and gas have been underperforming assets for several years now. But the world still needs fossil fuel energy, particularly for transportation needs. And underinvestment in the past could mean a catch-up move for shares of oil an gas equipment service provider Tetra Technologies.
While share shave been knocked down over 40% in just a year, the company’s water and flowback technologies make its services critical for new wells today. Shares are inexpensive at 8 times forward earnings, and carry a 22% gross profit margin, a high level for the razor-thin margins often found in the energy markets.
Plus, Tetra provides services and additives that make it valuable to the lithium market, meaning that Tetra can grow if oil and gas prices remain low, but lithium and EV demand takes off again. This makes for a win-win play that could deliver significant upside for investors.