Everything is expensive these days including stocks. Amid a raging bull market, it is tough to find affordable stocks to buy. But they are available and it is worth the effort to track them down.
Sporting discounted valuations and affordable share prices, undervalued stocks under $50 represent a sweet spot for investors.
There is nothing magical about stocks trading under these thresholds. It just becomes increasingly difficult for companies to enjoy the same kinds of gains as lower priced securities. Even though a $10 stock moving higher to $20 is the same percentage gain as a $100 stock doubling to $200, it is easier for the cheaper stock to make that move because of greater volatility.
Yet cheap stocks are often cheap for a reason. It is important you vet these companies to ensure their business isn’t broken and they have the resources available to capitalize on their opportunities.
Below are three undervalued stocks under $50 that have the ability to grow very fast. Let’s dive in to see what sets them apart from their more expensive peers.
Select Medical Holdings (SEM)
Healthcare facility operator Select Medical Holdings (NYSE:SEM) is the first discounted stock to consider. The operator of long-term acute care and in-patient rehabilitation hospitals, occupational health, and physical therapy clinics is one of the biggest in the space. It operates 107 hospitals in 28 states, 33 rehab facilities in 13 states, over 1,900 outpatient rehabilitation clinics in 39 states and 547 occupational health centers in 41 states.
All of its segments are enjoying revenue growth with the fastest-growing ones expanding at double-digit rates. That is because healthcare tends to be recession-resistant. People need their healthcare regardless of economic climate. We’re in a bull market now but unemployment is rising and wage growth slowing even as inflation remains elevated.
Select Medical currently trades at around $36 a share, which is just 16 times next year’s earnings estimates, and at a fraction of its sales. Wall Street forecasts the healthcare facilities operator will grow earnings at a compounded annual growth rate (CAGR) of 32% for the next five years, or twice as fast as it did for the last five. It also pays a dividend that yields 1.4% annually.
Although SEM stock is up 54% in 2024, it remains an attractive undervalued stock under $50 that has plenty of growth in store.
Cars.com (CARS)
Automotive marketplace Cars.com (NASDAQ:CARS) stock has been flat over the last six- and 12-month periods, but it may be ready to rev its engines today. A trio of factors could open up the auto market again for growth.
Inflation, though elevated, could be soft enough to spur the Federal Reserve to cut interest rates. The rise in unemployment and the loss on real wage growth are just two factors that could spur the Fed to action earlier than previously believed. Many analysts are now looking to a September rate cut.
Rate cuts will make financing a new or used car purchase more affordable. Cox Automotive says the average price in July for a new cars is $47,433, down 0.2% from last year. Moreover, dealer lots are flooded with vehicles. They will want to be aggressive in selling cars, which is where Cars.com comes in.
It’s asset-lite business model connects car buyers with car sellers. Owners can also sell their own cars, even getting instant cash offers for the vehicles. Business is picking up for Cars.com with revenue up 8% to $180.2 million in the first quarter. Some 80% of its revenue comes from dealer subscriptions, which suggests they are finding the marketplace particularly valuable in the current climate.
Trading at just 8 times next year’s earnings estimates, less than twice its sales and a bargain-basement 9 times free cash flow (FCF), Cars.com is an undervalued stock going for less than $19 a share.
Innoviva (INVA)
Biotech stock Innoviva (NASDAQ:INVA) is another cheap stock under $50. In fact, it also trades under $20 a share. Yet it is growing. INVA stock is up 33% year-to-date as its portfolio of high-value drugs continue to grow. It also has a portfolio of assets earning royalties from its partnership with pharmaceutical giant GSK (NYSE:GSK).
Royalty revenue was up 2.6% in the first quarter while its core drug products were up 66% from last year. Much of that was due to the introduction of Xacduro, an antibacterial for patients with hospital-acquired and ventilator-associated bacterial pneumonia (HABP/VABP) caused by the acinetobacter bacteria. It typically only causes infections in healthcare settings.
Innoviva also has a therapy in Phase 3 trials for the treatment of uncomplicated gonnarhea. Zoliflodacin had a 96.2% cure rate in late-stage trials.
INVA stock trades north of $16 a share, which represents a multiple to earnings of just 7x. With analysts forecasting near-20% long-term earnings growth, it means Innoviva is going for a significant discount to those estimates. Also trading in the discount bin for FCF, the biotech is an undervalued stock under $50 worth your attention.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.