The old adage of "buy low, sell high" is a lot harder to follow than it sounds -- especially the second part. There are a lot of opportunities to buy stock in companies at low at the moment -- especially after the sharp coronavirus-fueled correction to the broader stock market -- but that doesn't necessarily help you avoid a bad investment that ruins your chance to make a profit.
What you need is help picking out good investments at low prices. With that in mind, here are three great companies with stocks trading under $10 a share that are also good investments: Glu Mobile (GLUU), Zynga (ZNGA), and Kinross Gold (KGC). Let's take a closer look at why.
It's "game on" for these two companies
Mobile game companies have been one of the few bright spots in the past two months of market downturns. Widespread stay-at-home mandates to slow the spread of the coronavirus pandemic have kept most people at home with time to kill and smartphones in their hands. But both Glu Mobile and Zynga were actually doing well this year before the pandemic dominated discussions and COVID-19 has done nothing to slow them down.
Glu Mobile, based in San Francisco, is a creator of free mobile games like Tap Sports Baseball, Design Home, and Covet Fashion. The company has been a strong performer over the years with an annualized return of 18% over 10 years up through Dec. 31, 2019, a return of 9% over five years, and a 47% bump over three years.
In 2019 the stock price was down 25% for the year, but Glu closed strong, with revenue up 18% to $112.9 million in the fourth quarter, compared to the previous year's quarter. Bookings (cash paid for virtual items) was up 17% in the quarter to $108 million. For the full year, revenue was up 12% to $411 million.
Further, the company had record profitability in the quarter, at $10.8 million up from a net loss of $13.2 million in the fourth quarter of 2018. EPS was $0.07 in the fourth quarter, up from an EPS loss of $0.09 in the previous year's quarter.
This year, the stock price is a top performer, up 30.7% year-to-date as of April 15. Glu Mobile released the latest version of its most popular and profitable game, Tap Sports Baseball in March and expects to get a revenue boost from its just-released new game, Disney's Sorcerer's Arena. Glu management projects between $423 million and $433 million in bookings this year, which would be a slight increase over 2019.
Zynga is another mobile game provider with games like Words With Friends, FarmVille, Merge Magic!, Merge Dragons!, Zynga Poker, Empires and Puzzles, and Game of Thrones Slots Casino among its more popular titles. The stock has been very good to investors the past few years. It's up about 25% this year, trading at $7.65 per share. Last year it was up 55%, and over the last five years, it has an annualized return of about 18% per year.
Last year, Zynga posted $1.32 billion in revenue, up 46% over the previous year, and $1.56 billion in bookings, up 61% for the year -- both records. Cash flow from operations was $263 million, up 56% from 2018 with $1.54 billion of cash and investments at year's end. These numbers all exceeded guidance estimates.
In 2020, the company expects to increase revenue by 21% to $1.6 billion and bookings by 12% to $1.75 billion. In addition to its successful forever franchises, Zynga hopes to get a boost from a new Harry Potter game, Harry Potter: Puzzles & Spells, as well as second-half launches of Puzzle Combat and FarmVille 3. Like Glu, this is not only an excellent social-distancing stock, it's one with great long-term earnings potential.
A golden opportunity in mining
Stock market downturns tend to be a good time for the gold market as investors flock to gold as a safe haven during the market correction and weakening economy. We're seeing that now as gold stocks surge along with a spike in gold prices, which have climbed to over $1,700 per ounce -- the highest level in seven years.
As gold stocks are typically tied to movements in gold prices, it's usually a cyclical play. But gold stocks can also be a good hedge in a market downturn and provide investors with a diversified portfolio. If you're looking for that diversification, one of the best stock buys in the sector is Kinross Gold.
Kinross operates gold mines in the United States, Brazil, West Africa, and Russia. The stock price is up nearly 50% this year and it has been among the steadier performing gold stocks, generating a 10.9% annual return over the last five years. Two factors that stand out for Kinross is its relatively low all-in-sustaining-cost (AISC), which gauges how much it costs the company to produce an ounce of gold. It had an AISC of $983 per ounce at the end of last year, which was below expectations, and the guidance is for it to be even lower, $970 per ounce, in 2020. Plus, Kinross has an excellent cash position with about $1 billion in cash and cash equivalents as of March 31.
The company's efficient cost of mining gold means that when gold prices do eventually drop, the low AISC should cushion the fall. But analysts don't expect prices to drop any time soon. Gold prices should continue to rise or remain steady over the next few years as the economy is expected to move into a recession and interest rates are likely to stay low.
The stock is currently trading at around $7 per share with a P/E ratio of around 10 times earnings. While investors should always be mindful of gold's cyclical nature, Kinross is a good stock that should have value for investors over the next few years and provide great diversification in uncertain times.