Want to know how to make your investment dollars
go farther? I’ve found five small cap stocks under $5
that could double in the next year. Of more than 4,300 small company stocks, these
are my five favorite to buy for 2020. We’re talking best stocks under $5 per share
today on Let’s Talk Money! Beat debt. Make money. Make your money work for you. Creating the financial future you deserve. Let’s Talk Money. Hey Bowtie Nation, Joseph Hogue with the Let’s
Talk Money channel. A special shout-out to all you in the nation,
thank you for spending a part of your day here. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. Nation, since our best stocks under $10 video
in October, you’ve been asking for another on cheap stocks. Four of the five picks in that one are beating
the market and the group is averaging a 7.5% return in just the last month. So let’s go lower! We’ve already seen how these low price stocks
can boost your portfolio for outsize gains, what about stocks under $5 to really give
it growth? Now to be clear, we’re not just talking
about any stock under a $5 share price. Shares of Avon Products trade for $4.40 each
but the company has a market cap of nearly $2 billion. No, I want to find the best small cap companies,
cheap stocks of small companies primed to become the next Amazon or Apple. For that, we’ll be looking at companies
with a market cap of under $1 billion along with some critical factors. The reason here is that small caps just tend
to beat the market. We see in this chart of the Russell 2000 index
of small cap stocks, the green line, and the S&P 500 index of the largest U.S. companies
in red, smaller stocks have a habit of breaking out for stronger returns. Now small cap stocks have broken down since
early this year and are actually lagging by almost 9%, mostly on the recession fears we
had earlier in the year. That means valuations have come down, a lot
of investors have bailed and you can pick up that 9% gap plus more with the right small
stocks. These small companies also have better financial
flexibility to shift with trends and are not well covered by Wall Street analysts. You’ve got a much better chance at finding
a great, undiscovered investment. I don’t want to oversell this though. I want to walk you through real quick on what
to look for to find stocks under $5 and these small cap opportunities, then I want to reveal
those five small company stocks you’ll want to put on your radar for 2020. In fact, I’m putting these five stocks in
my Webull paper portfolio with $10,000 each. I love the option on Webull to create these
test portfolios and different strategies. Webull is a newer online platform but perfect
for stock traders. It’s completely free to invest, you’ll
never pay a commission to buy or sell, and the app is set up for stock trading in a way
that Robinhood can’t handle. With Webull, you not only get that trade simulator
with a paper portfolio but also access to extended hours quotes before and after the
official market open I’ll be tracking these five stocks for a
couple of months in my Webull paper portfolio and then update you on how they do. I’ll leave a link to Webull in the description
below if you want to learn more about using the trading simulator to test out your ideas. Screening through more than 4,300 small stocks
under $5 a share, I looked for companies with positive sales trends and strengthening financial
health. So I screened for measures like a falling
debt-to-equity ratio, sales in the last year that were higher than previous and an improving
current ratio. Watching for that financial health is critical
when you’re picking these small cap stocks. These companies don’t have the scale or
financial power of the larger mega-cap stocks. A weakening economy or financial trend can
wipe them out in a heartbeat so you need to find the ones with the best likelihood to
survive until they can grow. Now you’re never going to find a small cap
stock with a perfect balance sheet. These companies live on debt so they’re
usually pretty highly leveraged already but look for ones with a lower debt-to-equity
ratio and improving sales numbers. Using these criteria, I found five stocks
under $5 that could be worth a look. To get that important diversification, I’ve
tried to pick stocks from different sectors so we’ve got picks from energy, retail,
healthcare and financials. Our first here is Range Resources, ticker
RRC, with a 1.9% dividend yield which is rare for small cap companies. RRC is an oil & gas exploration company out
of Texas and looking for small cap stocks, you’re going to find a lot like this one. The energy sector has just been slammed over
the past five years on weak crude prices and a wave of supply out of U.S. shale fields. Range Resources is one of the lower-cost producers
where it produces and has a huge backlog of drilling locations it has in inventory. This makes it a best of breed in the space
but even that doesn’t make it immune from bad economics of supply and demand. Now I realize that’s not a very good pitch
for a stock you might consider buying but I want you to know the risks. When oil and gas prices move higher, this
one will be the first to benefit and I think the share price could be worth double what
it is now. Shares trade for 7.9-times earnings but profits
are expected to pretty much bottom out over the next year before they start to recover. Analysts have a low target of $4 per share
and a high around $5 over the next year but this is one that has most of it’s life waiting
over the next three to five years. These small cap oil stocks are definitely
ones you want to be strategic with your investing dollars. Consider saving half of your investment for
later, maybe six or 12 months after your initial investment just in case prices continue to
fall. This sector is the only value left in the
market though and I don’t think investors can ignore it. I added my five favorite oil stocks to our
sector investing series just recently. I’ll link to that in the video description
below as well. Next here is deals site Groupon, ticker GRPN,
and although this one is a little bigger at $1.6 billion, I really like the potential
here. Groupon competes in two markets. First in the daily deals segment where local
businesses advertise and pay Groupon thirty- to thirty-five percent of coupon prices. Also in the direct shopping segment where
customers can buy directly on the site and where gross margins are around the 12% to
15% range. The daily deals space puts it in competition
with social media platforms like FB where businesses can advertise on their own. Direct shopping puts it in competition with
Amazon. Both are tough markets but fortunately for
Groupon, also vast and growing markets. Online retail sales are growing at double-digit
rates every year and the trend to buying experiences fits well with Groupon’s coupon deals. What I like about Groupon is its rock-solid
balance sheet with just $200 million in long-term debt and over $840 million in cash. That’s a third of the company’s value
in cash. Shares trade for 19.6-times earnings which
are expected to jump 73% in the next four quarters. I’m not sure it can make that kind of growth
but even profit growth in the twenty- or thirty-percent range could be enough to bring investors back
big time. I think Groupon has some real strength here
in its platform and a lot of fundamental value in the balance sheet. Even if that earnings growth disappoints,
the company could be a buyout target some day to fold into a larger retailer. Analysts have a low target of $2.80 per share
and a high of $5 each over the next year and I think the next four quarters could be pivotal
for the company. $250 million Seres Therepeutics, ticker MCRB,
trades for around $3.60 per share and could be an outperformer in 2020. The biotech company is focused on the ulcerative
colitis market with over 700,000 patients in the U.S. alone as well as other immuno-oncology
treatments. Seres is expecting four pipeline milestones
in 2020, any of which could bounce the shares on headlines. The earnings picture is ugly but that’s
how it is with biotech companies. Biotechs like Seres burn through cash until
they hit a blockbuster and then sell it to one of their program partners. The company has no long-term debt though and
the $102 million in balance sheet cash is seen as sufficient to fund operations through
2021. There are only three analysts here with price
targets so don’t read too much into it but a low target at $8 per share and a high around
$11 each is definitely something that puts this stock on my watch list. The smallest company on our list is $169 million
Elevate Credit, ticker ELVT, a sub-prime online lender for borrowers in the U.S. and U.K.
markets. Elevate is a small fintech company but turned
profitable in 2017 and has booked triple-digit earnings growth in each of the last two years. Costs to find customers has plunged over the
past year to $184 which is 25% lower than the $245 cost it booked per customer in 2018. Shares trade for just 6.2-times earnings which
are expected higher by 24% over the next four quarters and to continue climbing from there. I feel like investors still aren’t giving
much credit to fintech loan companies and you can see why after the experience with
Lending Club’s falling stock price. While Elevate may not have the size of other
lending platforms, it’s profitable and the valuation here is too low to ignore. Just one analyst watching Elevate here so
you can pretty much ignore this chart but I had to include it for consistency. This is a rare opportunity in small cap stocks
with a profitable company and solid growth. I can easily see this one going to $5 a share
and beyond in the next 12 months. Nabors Industries, ticker NBR, is the world’s
largest land rig drilling contractor and shares here are actually below $2 each. Last oil & gas play here, I promise, but I
couldn’t pass up Nabors in the list. I like Nabors because not only is it a leader
in U.S. drilling but it has a strong international presence where rig counts should start to
improve soon. The earnings picture on this one is not pretty
but the company has the cash flow to cover its debt payments so I don’t think there
is any existential danger here. The analysts on Nabors think the share price
has bottomed around that $2 lower bound and could go as high as $4 per share over the
next year. Just like with Range Resources, this is one
you have to watch for a while. Click on the video to the right for the five
oil stocks that should be on every investor’s radar in 2020. Dividend yields as high as 10% and upside
price appreciation. Don’t forget to join the Let’s Talk Money
community by tapping that subscribe button and clicking the bell notification.