Investors need to be careful when fishing for stocks in the low-priced sea. Many of these stocks are priced low for good reasons -- they're quite risky and/or have limited growth potential.
That said, there are certainly some low-priced stocks that are worthy of your consideration as investments. Two such stocks priced at under $20 per share that have good long-term growth potential are Brazilian water utility Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS) -- or Sabesp, for short -- and desalination specialist Consolidated Water (NASDAQ:CWCO).
- Market cap: $8.5 billion
- Year-to-date 2019 stock return: 57.6% (vs. S&P 500's 21.9%)
- Dividend: 2.5%
Sabesp provides water and wastewater services in Sao Paulo, Brazil. The company has solid growth potential -- Wall Street expects it to grow earnings per share (EPS) at an average annual pace of 10.1% over the next five years -- and pays an attractive dividend, currently yielding 2.5%.
In the second quarter, Sabesp's revenue jumped 10.1% year over year to 3.58 billion Brazilian real and net income soared 150% to 454.4 million real, or 0.66 real per share.
Brazilian stocks have gotten a tailwind from last year's election of Jair Bolsonaro as president of the South American country. Bolsonaro, who took office on Jan. 1 of this year, has promised to enact market-friendly reforms. Of course, it remains to be seen if he fulfills this and his other campaign promises.
Sabesp has been a volatile stock due to the company being located in Brazil. The country has had its fair share of political turmoil. Moreover, Sabesp's financial results are affected by the exchange rate between the Brazilian real and the U.S. dollar because the company has historically held a considerable portion of its debt in U.S. dollars. This is a stock best suited for investors with a higher risk tolerance.
Consolidated Water: $16.27
- Market cap: $244.5 million
- Year-to-date 2019 stock return: 42.3%
- Dividend: 2.1%
Consolidated Water, in its own words, "develops and operates seawater desalination plants and water distribution systems in areas of the world where there are scarce amounts of naturally occurring potable water. The company operates water production facilities in the Cayman Islands, The Bahamas and the British Virgin Islands." Consolidated's desalination plants use reverse osmosis technology. Moreover, the company also has operations in the United States that "manufacture and service a wide range of products and provide design, engineering, management, operating and other services applicable to commercial and municipal water production, supply and treatment, and industrial water and wastewater treatment."
Wall Street projects that Consolidated Water will grow earnings per share at an average annual rate of 8% over the next five years. That would represent an acceleration of growth, as the company's EPS grew at an average annual pace of 6.4% over the past five years.
In the second quarter, Consolidated Water's revenue jumped 22% to $18.3 million, and its net income rose 13% to $2.5 million, or $0.16 per share.
In short, the water utility and related space look attractive, as demand for fresh water should increase due to the earth getting warmer. At the same time, rising temperatures could negatively impact supply. Economics 101 tells us that this is a great equation for the suppliers of fresh water and not a good one for consumers, who will likely have to dig deeper into their pockets to pay their future water bills.