Even though there are more than 7,000 equities listed on U.S. stock exchanges, many people choose to stick with large, brand-name companies they're familiar with, such as Coca-Cola or Johnson & Johnson (NYSE:JNJ).
But an entire universe of potentially under-the-radar gems exists at much lower stock prices -- some for less than $5 per share -- than these industry giants. Most investment firms prefer to avoid sub-$5 stocks, as they can be construed as too risky, but for open-minded long-term investors like you and me, stocks trading for less than $5 can be just as important of a contributor to long-term wealth creation as a Coca-Cola or J&J.
If you're on the hunt for top stocks under $5 that could make a big impact on your retirement goal, then I'd suggest digging deeper into these four companies.
Though it's been a banner year for precious-metal miners as a whole, Primero Mining (NYSE:PPP) has seemingly been the exception to the rule. Primero's first-quarter earnings featured much higher than expected mining costs tied to safety upgrades at its flagship San Dimas mine, which led to an uptick in its all-in sustaining cost (AISC) forecast for 2016, as well as a reduction in production expectations.
Also, Primero's Mexican subsidiary is dealing with tax authorities in Mexico that are seeking to invalidate its advanced pricing agreement (APA), which dictates what percentage of income the government is entitled to. The overhang of this tax issue has weighed on Primero's valuation.
But both of these issues are short-term in nature. Primero's APA will be resolved, and its safety upgrades took just weeks, with San Dimas operating at full strength once again. What this means is that Primero is free to get back to doing what it does best: increase production output while pushing its AISC lower.
With the exception of 2016, Primero has increased its gold-equivalent production every year since 2011. This trend could continue if Cerro del Gallo in Guanajuato, Mexico, is brought online. Costs have also been falling, especially at its Black Fox mine in Ontario. After reporting AISC of $1,425 an ounce at Black Fox in 2014, AISC could dip below $1,000 an ounce by 2017.
Yet what really stands out is Primero's relative "cheapness" to its peers. Most gold-mining stocks are valued at around 10 times next years' annual cash flow per share. Primero is valued at less than four times its projected annual cash flow per share. If Primero can indeed put these short-term issues behind it, the recent rally in spot gold prices would make it a steal at its current price.
The "biggest" name on this list is Dutch insurance company Aegon (NYSE:AEG), a midcap provider of life insurance, pensions, and asset management services. Though the company operates globally, it gets about two-thirds of its revenue from its TransAmerica subsidiary in the United States.
Aegon has faced two specific issues that've weighed on its valuation. First, late last year Aegon wound up taking an $843 million charge for the disposition of its Canadian insurance business. Normally, investors can overlook one-time charges, but changes in Aegon's risk-assumption models that could cause it to hang on to more capital to cover claims should they arise made this steep loss quite unpalatable.
The other issue all insurers are coping with is the current low-yield environment. Insurers look to invest their float -- premium received that's not been paid out as a claim -- in safe, interest-bearing assets. These investments aren't yielding much of anything at the moment, which has pressured Aegon's net investment income.
Long-term investors, though, have plenty of reasons to be bullish. For example, Aegon is pulling levers where it can to cut costs and promote only its most profitable, highest-margin businesses. In response to near-record low yields, Aegon announced plans in January to cut its costs by roughly $225 million by 2018, as well as dispose of other low-margin assets, which may include its annuity operations in Britain. At the same time, Aegon announced its intent to purchase up to $460 million worth of its common stock, which could help boost its EPS by reducing its total shares outstanding, and it also increased its quarterly dividend by 8%.
A bigger-picture growth driver for the conservatively run Aegon is the normalization of lending rates. It's probably unlikely that yields will remain where they are now over the long run, which means that yield expansion will have a positive impact on its net investment income in the future.
Sporting a market-topping 7% yield and single-digit forward P/E, Aegon could be a top stock under $5 that's too cheap to pass up.
It's not uncommon for companies trading with a sub-$5 price tag to be losing money on an annual basis. Stocks are typically priced inexpensively for a reason -- and that reason is usually the skepticism surrounding their long-term prospects. Biotechnology company Geron (NASDAQ:GERN) is indeed losing money, and it'll probably continue to do so for the immediate future, but that doesn't negate the fact that it's a top stock to consider for more risk-tolerant investors.
The biggest risk that needs to be considered with a biotech stock like Geron is that its pipeline essentially revolves around a single developing drug: imetelstat. If imetelstat fails to live up to expectations in clinical trials, Geron would be worth much less than it is now.
However, there's reason to believe that imetelstat could be a game-changer, which is why it makes this list of top stocks under $5. In early-stage clinical studies, imetelstat was given to patients with a rare form of cancer known as myelofibrosis (MF), which leads to the scarring of bone marrow. The only medication currently approved to treat MF is Incyte's Jakafi. But Jakafi only works to ablate some of the symptoms associated with the disease; it does nothing in the way of suppressing MF. Imetelstat did lead to partial and complete responses for MF patients in its early-stage study. Presumably, if imetelstat meets its primary endpoint in later-stage studies, it could devour Incyte's revenue stream as a superior drug to treat MF.
On top of MF, imetelstat is being studied as a treatment for myelodysplastic syndromes in a phase 2/3 trial that's currently recruiting.
The linchpin of success for Geron could be Johnson & Johnson, which is its collaborative partner. J&J supplied Geron with $35 million in upfront capital and has dangled a carrot of milestone payments that could be worth up to $900 million depending on the success of imetelstat in clinical trials. While no company is perfect, J&J has a track record of identifying and partnering with game-changing drug developers.
If approved, imetelstat could become a blockbuster therapy, making Geron a top stock under $5 to consider buying.
Lastly, I'm paying homage to a content-management solutions company I own in my own portfolio, Lionbridge Technologies (NASDAQ:LIOX).
Recent weakness in Lionbridge's share price can basically be traced to the fact that few Wall Street firms cover the company. When Lionbridge reports its quarterly results, what it earns in profit per share tends to differ wildly from the small handful of analysts covering the company. Lionbridge has missed the Street's quarterly EPS estimates in two of the past three quarters, which has weighed on its valuation.
However, I'd take these "earnings misses" with a grain of salt, because Lionbridge has a number of long-term growth catalysts working in its favor. To begin with, the company operates in a niche space of the tech world: software and document translation. Lionbridge has been focused on expanding the industries with which it provides these translation services, and it's been moving its operations into the considerably faster growing cloud-computing market. I've previously opined that Lionbridge's niche offerings could be the perfect bait for a larger suitor to buy the company, but I'm certainly not betting on a buyout to increase the value of my Lionbridge shares.
Additionally, Lionbridge has been using inorganic growth to supplement its push for operational diversification. The $77 million acquisition of CLS Communication early last year added to its market share among the financial, industrial, and life-science industries, while its purchase of Geotext in November allowed it to get its foot in the door in the legal translation services industry. Diversifying its operations should ensure its revenue is less lumpy going forward, and that it has the best opportunity to benefit from sustained economic growth.
Lionbridge Technologies' sub-1 PEG ratio and single-digit forward P/E make the company attractive from a fundamental standpoint.
Sean Williams owns shares of Lionbridge Technologies, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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