The U.S. Consumer Price Index, a metric used to gauge inflation, soared by 5.4% on an annualized basis in June and July -- the highest levels recorded since September 2008. The Federal Reserve maintains that this inflation, caused by the pandemic-related supply chain disruptions in a reopening economy, is mostly "transitory." However, Federal Reserve Chairman Jerome Powell recently said that this level of inflation may persist longer than expected into 2022.
While the central bank has decided not to change near-zero interest rates or its $120 billion bond-buying program for now, many economists are anticipating a slowdown in bond buying in the coming months to potentially have some impact on this inflation rate.
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Opposing viewpoints on inflation and interest rates from some central bank leaders and economists are proving to be extremely confusing for some retail investors. These are uncertain times, but long-term investors still have opportunities to earn solid returns with minimal investment. Even a capital outlay of only $500 -- if it's available and not needed for expenses, debt-reduction, or to fund an emergency fund -- can be used to buy some cheap yet fundamentally strong stocks if you know where to look. Here are three dirt-cheap stocks worth considering.
1. CuriosityStream
Created by Discovery Communications' founder John Hendricks, the nonfiction-focused CuriosityStream (CURI -4.50%) is a relatively new entrant in the video streaming space. The company's portfolio boasts over 3,100 factual titles, including more than 1,000 documentaries in categories such as science, history, technology, nature, society, and lifestyle. The estimated original production value of this content is $1 billion.
CuriosityStream currently faces little competition in this genre. Additionally, the company has opted for a hybrid distribution model (direct subscription service available in 176 countries, more than a dozen partners including Amazon's Prime Video service and Alphabet's YouTube TV, and bundled distribution partners in 83 countries across five languages). Unique content coupled with a robust distribution model has helped the company rapidly ramp up its paid subscriber base from around 1 million in 2018 to close to 20 million at the end of the second quarter of 2021 (ended June 30). Additionally, 75% of the direct subscribers opt for annual subscription plans, which in turn helps control churn rates.
In the second quarter, CuriosityStream reported a 56% year-over-year jump in its direct subscription customers, a cohort that rakes in high average revenue per user. The company is also focused on rapidly expanding its international presence. The recent partnership with Spiegel TV will increase brand awareness in Germany, as well as add hundreds of hours of German-dubbed content. The company has guided for 80% year-over-year revenue growth to $71 million for fiscal 2021, of which more than 90% is already committed.
CuriosityStream is not yet profitable, which is not abnormal for an early-stage high-growth technology company. However, against the backdrop of solid direct subscriber growth, high revenue visibility for fiscal 2021, a broad portfolio of factual content with appeal across demographics and markets, and expansion plans in Germany, the company offers an attractive risk-reward proposition to retail investors.
2. fuboTV
fuboTV (FUBO 1.80%) stands to benefit significantly from the increase in the number of U.S. cord-cutter households from 31.2 million in 2020 to 46.6 million in 2024 since it enjoys an early mover advantage in the sports-centric live-streaming space. Although viewers have long been switching from linear TV to streaming services for entertainment content, many continue to rely on cable, satellite, or telecom TV packages for news and sports. In fact, according to a Parks Associates study, 27% of U.S. pay-TV households opted for the service mainly for sports programming. The global livestreaming market is expected to grow at a compounded annual growth rate of 27% from 2021 to 2027. With fuboTV offering live sports streaming and TV services at half the price of similar cable packages, the company seems well-positioned to rapidly expand its subscriber base in the coming months. In the second quarter (ended June 30), the company subscriber base expanded year over year by 138% to 681,721.
Image source: fuboTV.
Additionally, increasing advertising spend in a recovering economy can also prove to be a major growth driver for fuboTV. eMarketer estimates U.S. connected TV video ad spending to increase from $9 billion in 2020 to $24.8 billion in 2024. This is a solid opportunity for the company, especially since access to first-party data enables it to make optimal decisions for content development, subscriber engagement, and ad performance.
fuboTV will soon be reporting new revenue streams, thanks to its planned expansion in the sports wagering market. To that effect, the company acquired contest automation software player Balto Sports in December 2020 and sports betting player Vigtory in January 2021. Zion Market Research expects the online sports wagering market to be worth $155 billion by 2024. fuboTV plans to leverage this opportunity by launching a free-to-play gaming product in the third quarter and a sportsbook or sports gambling service by end of 2021.
The company faces some risks arising from stiff competition, dependence on external providers to license content, and lack of profitability. However, despite these challenges, the company seems very well positioned for a solid growth trajectory in the coming years.
3. Global Ship Lease
Global Ship Lease (GSL 0.64%) has emerged as a major beneficiary of skyrocketing container ship charter rates (the rate agreed upon between container ship operator and vessel owner), a direct consequence of rapidly rising demand for consumer goods in a recovering economy amid dramatic vessel shortages.
Unlike larger container ships, the company's midsize and smaller container ships can operate on more trade routes. Additionally, the new vessel orders placed in the last few years have mostly been for larger vessels. With 70% of global containerized trade volume moving outside the main shipping lanes, Global Ship Lease is currently in an enviable position.
Despite the increase in new ship orders, this supply-demand mismatch in the shipping industry will persist for several years. The demand for containerized trade is estimated to grow year over year by 6.8% in 2021 and 5.9% in 2022. However, very few new container ships are projected to enter the market till late 2023 or early 2024, due to capacity limitations at shipbuilding companies and lengthy ship construction timelines.
At end of the second quarter, Global Ship Lease's fleet capacity increased over 50% as compared with the end of 2020. The company has agreed to acquire 23 midsize and small containers with attached charters (contracts with cargo owners) worth $906 million in revenue and $332 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) so far this year.
In the first half of 2021 (ended June 30), Global Ship Lease's operating revenue rose 9.6% year over year to $155.9 million, while net income soared year over year by 70.1% to $41.5 million. The company has also more than doubled its quarterly cash dividend per share to $0.25 in the second quarter, which translates into a solid dividend yield of 5.45%.
Against this backdrop, although emission-related regulations are emerging as a major risk factor for the entire shipping sector, there are several structural tailwinds that can propel the stock on a solid upward trajectory in the coming months.
