Investors like buying low-priced stocks because of the perception that it's easier to make money with them. It's why penny stocks are perennial favorites even though they carry exorbitant risk. If the stock moves up just a few cents, an investor can make phenomenal returns.
While that's more a prescription for losing your entire investment, there is some sense to investing in stocks that have some meat to them and are priced under $20 a share. These tend to be small- or mid-cap stocks that have real products, are producing profits, and can readily generate significant returns if their growth thesis holds.
All else being equal, it's arguably easier for a $20 stock to grow to $40 per share than for one valued at $300 to hit $600 per share. With that in mind, below are three low-cost stocks investors should consider.
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Albertsons
Like supermarkets everywhere, Albertsons (ACI 2.03%) benefited from the COVID-19 crisis as consumers stocked up on food and basics, even if they couldn't make it to the store themselves. Q3 comparable sales jumped over 12%, while digital sales surged 225% from the year-ago period, the second straight quarter of growth in excess of 200%. And those trends are likely to continue even after the pandemic is firmly in the rearview mirror.
Albertsons CEO Vivek Sankaran says working and eating at home have become habits for consumers now and are not just transient trends. So even though the torrid pace of growth will undoubtedly ease up some, the supermarket chain should continue to post higher sales compared to the prior year.
At just under $20 a share, Albertsons may quickly break through the threshold, but investors should be ready to buy on any dip.
Duluth Trading
Unlike supermarkets, which were declared essential businesses during the pandemic and allowed to remain open, apparel specialist Duluth Trading (DLTH +0.46%) was forced to close its 65 stores and rely upon online sales. While all of its stores have since reopened, the retailer is still contending with a consumer mindset that is reluctant to reengage in widescale shopping at physical stores, particularly as COVID-19 cases jumped higher at the end of last year.
That's OK, because it has seen tremendous growth in its online channel. Direct-to-consumer sales jumped 40% during its fiscal third quarter, while there was a 30% jump in digital traffic, with 15 million visitors to its site.
Although Duluth was only founded in 1989, it has quickly developed a reputation for quality workmanship equal to or exceeding that of privately held rival Carhartt, which was founded 100 years prior. Analysts forecast Duluth Trading will see earnings grow 25% annually for the next five years, which should translate into its stock rising well above the $13 level it currently trades at.
IMAX
We all know the state of the movie industry, if for no other reason than AMC Entertainment's (AMC 2.25%) on again-off again dalliance with bankruptcy. While the largest movie theater operator seems to have secured enough financing to see it through the end of 2021, IMAX (IMAX 0.35%) is not in nearly as desperate straits as its peer.
Shares of IMAX are also trading right around $20 a share at the moment and could easily escape from our grasp, particularly as the industry gears up for what could be Hollywood's equivalent of the "roaring '20s," in the words of CEO Richard Gelfond.
Theater operators had to endure being shut down and film premiers being delayed until this year. There's a lot of pent-up demand from consumers to go out to the movies. Though a number of films will be released directly to streaming services, or go out simultaneously to theaters, cinema operators are preparing for a big crush of moviegoers to return, even if they have limited seating capacities.
IMAX is already benefiting from that trend in places like China, where a sense of normalcy pervades once more. With Wall Street expecting the big screen leader to grow earnings in excess of 36% annually long-term, investors should be primed to grab IMAX stock when they can.
