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2 Great Stocks Under $20 to Buy for 2021

By Dave Kovaleski - Jan 4, 2021 at 11:42AM

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Rocket to the First Horizon for 2021 with these cheap stocks.

It's been a difficult year for many of us, and some may be limited in the capital they can invest as 2020 turns into 2021. If that's the case, know that there are some great stocks out there that you don't have to break the bank to invest in.

Keep in mind that just because a stock has a low price, it doesn't mean it's worth an investment. There are a lot of stocks out there that are cheap for a reason because they lack growth potential and won't deliver capital appreciation.

But there are some stocks that are cheap and have solid growth prospects, so these are stocks you want to consider investing in. Here are two good, cheap stocks trading for under $20 a share that should be on your radar for 2021 -- Rocket Companies ( RKT 1.21% ) and First Horizon National ( FHN 3.69% ). Let's find out a bit more about these companies.

A stack of $20 bills, fanned out on a table

Image source: Getty Images.

1. Rocket Companies at $20 per share

Okay, this one is technically not under $20, but it is right at roughly $20, and it's a terrific buy at any price. Rocket is the parent company of Quicken Loans and Rocket Mortgage, and it is the leading home mortgage lender in the country. The company has been around a long time as Quicken Loans, but it only went public as Rocket this past August. The stock is up about 13% since its IPO at $18 per share, but it has further to run and should be a good investment for a long time. Unlike many IPOs, this is no start-up; in fact, it comes to the market as a market leader.

Rocket has some key competitive advantages that have made it a top dog in the space. The primary edge is its digital business model, which enables consumers to refinance, apply for a loan, or do whatever they need to do through the Rocket Mortgage app. This includes transmitting documents, getting approvals, and e-signatures. The company has been steadily gaining market share since the app Rocket Mortgage Brand launched in 2016, and it now has about a 9% share of the market.

The company should continue to gain market share with its digital channels, which are not only popular among millennials, but will be even more utilized post-pandemic as more people demand the ease and safety of online transactions.

Rocket did a record $89 billion of closed loan volume in the third quarter, a 122% increase over the previous year. The near-0% interest rate environment spurred more people to refinance or move, but mostly refinance. That interest isn't going anywhere for a while, so there should be favorable conditions for Rocket, particularly as the economy improves and the home sales market heats up.

The other major advantage of the Rocket model is its low cost, as it greatly reduces the need for loan officers. That leads to higher gain-on-sale margins, a metric that measures the difference between the retail and wholesale cost of a mortgage. As a result, Rocket has lots of cash on hand -- about $3.5 billion, up from $1.4 billion at the start of 2020.

2. First Horizon National at $12 per share

First Horizon National, the holding company for First Horizon Bank, made a big splash in 2020 when it acquired IberiaBank in July. With the deal, Memphis-based First Horizon nearly doubled in size to $79 billion in assets, $60 billion in deposits, and $58 billion in loans. It also bought 30 former SunTrust branches from Truist Financial in North Carolina, Virginia, and Georgia.

The deals expanded its footprint to make it one of the largest regional banks in the South with almost 500 branches in 12 states, including Tennessee, Florida, Texas, South Carolina, North Carolina, Louisiana, Arkansas, Alabama, Mississippi, Missouri, Virginia, and Georgia.

The bank has had strong earnings growth over the past five years, averaging about 23% growth on an annualized basis through the end of 2019. Analysts project a 34% year-over-year earnings increase in 2021; company officials said the acquisitions are expected to deliver $170 million in cost synergies and boost earnings by 22% in 2021.

The bank is well run with an efficiency ratio of 49%, which is excellent, and had a return on tangible common equity of 13.9% in the third quarter. It is also available right now at a great value, trading below book value with a price-to-book ratio of 0.96 and a price-to-earnings ratio of 6.8. At those ratios, First Horizon National looks like a great buy.

These stocks are not only cheap but a great value -- and that's a winning combination.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Rocket Companies, Inc. Stock Quote
Rocket Companies, Inc.
$15.89 (1.21%) $0.19
First Horizon National Corporation Stock Quote
First Horizon National Corporation
$16.60 (3.69%) $0.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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