You can find cheap stocks on Robinhood but you need to know where to look!
Nothing is cheap anymore! After a more than 50% rebound in stocks, it’s almost impossible to find the good value stocks left in this market.
In this video, I’ll show you how to find the cheap stocks to buy and combine it with data to reveal the five Robinhood stocks I’m buying for value.
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Are there Any Cheap Stocks Left to Buy?
Nation, this market is a value investor’s nightmare! The PE ratio on the stock market, that price investors are paying per share of earnings is 34% higher than its 10-year average. In fact, you have to go back to 2001, during the tech bubble, to find a market as expensive as this one.
But that doesn’t mean their aren’t cheap stocks. If you look at the sector level; stocks in utilities, healthcare and financials are all trading much closer to that long-term average on a price-to-earnings basis and you can find cheap stocks to buy in any sector if you know where to look!
If you are going to make money in this market, you have GOT to be able to find those deals. How to find the cheap stocks nobody is watching.
That’s what I want to do in this video, show you how to find cheap stocks to buy, where to look for those deals. Then I’m going to combine this with other analysis to reveal five Robinhood stocks ready for a breakout.
How to Find Cheap Stocks in Any Market
This is exactly the kind of research I did when adding ConAgra Foods to our 2019 Dividend Portfolio in February last year, a stock that helped the portfolio beat the market last year and has surged 74% since.
I want to get into the list though and I’ll show you how I found these and what I’m watching as we go. Stick around because the last stock in our list is not only the cheapest in valuation terms but also gives you a 4.4% dividend yield while you wait for the shares to run higher!
Our first cheap stock here, $60 billion virtualization leader VMware, ticker VMW.
VMware is an industry leader in virtual machines for data centers and networking, one of the biggest trends in IT and primed for a wave of growth from network virtualization. The company’s vSphere and hypervisor products are THE gold standard in the industry and that continual subscription service revenue from customers really helps to stabilize sales.
The company has a price-to-earnings growth ratio, something I’ll explain in a little bit, of just 1.2-times which is 33% below the 1.8-multiple it traded at within the last year. I like this measure, the PEG ratio, much better than the more popular PE ratio for finding cheap stocks.
Something else I’m watching on these cheap stocks is the short ratio. That’s the percentage of the shares sold by speculators on a bet against the stock price. It’s a sign of bearishness and can actually be a great clue to beaten down stocks ready to rebound.
Just over 11% of the shares available in VMware are sold short which is extremely high for a large, profitable company like this.
Now, finding cheap stocks is one thing and I’ll show you what I’m looking for later in the video but finding cheap stocks ready to run is something completely different. For this you need a catalyst, a reason these stocks can break that share price weakness and head higher.
In fact, Nation, if there is one thing I can point to in more than a decade as a venture capital analyst and working with private wealth clients, one thing that helped put me in the top percentile of analysts is that ability to find a catalyst in stocks.
In VMware, besides just a great long-term investment, Dell recently announced that it may spinoff it’s 81% ownership stake in the company. That could allow more flexibility and control at VMware and help drive the valuation multiples higher. A big part of this as a catalyst though has been that management has already said a spinoff would include a special dividend paid to all VMW shareholders which should improve investor sentiment.
Analysts have targets from $115 per share on the low end to as high as $200 each over the next year which would be about a 40% upside from here.
Next on our list is $16 billion drug-maker for rare diseases, Biomarin Pharmaceuticals, ticker BMRN.
Shares of Biomarin plunged 38% last month when the FDA requested more data on its gene therapy drug Roctavian. It’s a promising drug and obviously, in how the shares reacted, it could be a big producer for the company.
What the market is missing here is that Biomarin still has a strong lead on competitors in the therapy. The last patient to enroll in the phase 3 trials will complete their two year trial in November which means the data should be available late this year or early next. That could completely reverse the slide and there’s a lot more to like about the company.
The company is building a world-class portfolio of genetic disease therapies. Heavy R&D costs have kept profits hugging the flatline for the last year but sales could boom over the next few. The company has a partnership with Sanofi to market Aldurazyme and it’s got a strong 2021 pipeline.
That plunge in the shares brought the PEG ratio to just 0.97-times which anytime you can get a stock for under one-times its price-to-earnings growth is a good sign, and it’s a 28% discount to the PEG multiple where the stock was just last quarter.
The short ratio here is about 6.5% which is still pretty high considering 99% of the shares are held by those large institutional players like hedge funds and market funds.
Twenty-three analysts have price targets from $77 a share to as high as $188 per share over the next year, not a single ranked analyst has a target under the current share price.
These are strong companies with solid catalysts, reasons for that share price to rebound. In fact, I’m putting all five into my paper portfolio on Webull and will be buying each. I love the paper portfolio on the app because I can test out strategies and follow stocks until I’m ready to buy. Look for the link to Webull in the description below and get a free share of stock worth between $8 and $1000 when you make your first deposit.
Next here in our list of cheap stocks, pharmacy leader CVS Health, ticker CVS and a 3.2% dividend yield.
CVS has a lock on healthcare delivery and benefits from that in-store effect, selling higher margin items along with groceries. The company is front-and-center on the virus testing and could see a huge upside from the eventual vaccine administration. CVS beat expectations for earnings by 17% last quarter and this is a solid value play at just 1.14-times on a price to earnings growth basis, half of what it was late last year.
I really like this company, especially as a hedge on my own healthcare costs. We’re all getting older and healthcare costs are out-of-control, right? What better way to hedge those costs that by investing in what’s probably the most broadly integrated healthcare company in the world?
CVS has been building this for more than a decade, adding pharmacy benefits manager Caremark in ’07 and insurance with Aetna in 2018. It basically has a hand in every step of healthcare delivery and can use that to squeeze out every penny of profit.
Analysts have targets ranging from $73 on the low end to as high as $104 per share over the next year. Think about that, not only are the lowest analyst price targets about 17% higher than the current price, but you get that 3.5% dividend yield while you wait.
We’ve got two more in our cheap stocks list but I wanted to detail here what I’m looking for to find these stocks and this is something a lot of value investors don’t understand.
The problem is, you can’t just look for ‘cheap’ stocks. For example, most investors will go straight to the PE ratio and buy the cheapest stocks, the ones with the lowest price-to-earnings ratio.
But doing this, you miss out on a LOT of opportunities. Hell, even at its 2009 low, shares of Amazon traded for 86-times on a price-to-earnings basis when the rest of the market was falling to 10-times earnings.
If you were just looking for low price-to-earnings stocks, you would have missed out on an investment worth 34-times your money!
So I look at the PEG ratio, that price-to-earnings to growth instead. This is the traditional PE ratio, so price divided by earnings, then take that divided by the growth rate of earnings.
This helps to find those growth stocks that are relatively cheap as well. For example, if we look at the stats for Amazon, the price hasn’t traded below 72-times earnings which definitely does not look cheap. But the PEG ratio has actually been close to one-times as of last September.
Using that one-times PEG ratio as a good value signal, you could have doubled your money in shares of Amazon just in the last year!
Now I’m going to share two more ways to look for these cheap stocks and how to tie this in with some Robinhood statistics to find the ones that Robinhood investors might be overlooking, but we’ll do that next because I want to get back to our list.
Our fourth cheap stock, $17 billion media giant Viacom, ticker VIAC, and this is another one that’s going to pay you to invest.
The company is a product of the Viacom and CBS merger last year and creates a much stronger media and content machine. Together, it has better control over the entire process from production through CBS studios to distribution in cable and streaming. The breadth of distribution here helps to mitigate the loss on pay TV business and the company was able to beat earnings expectations by 34% last quarter.
Viacom has typically traded below one on its price-to-earnings growth ratio so this one isn’t quite as cheap as it may seem but I still think there’s a lot of value in this one. Nearly 17% of the shares available are sold short, so a lot of negativity in a company that’s very closely held by insiders and institutional investors.
I like the potential in that merger and this one could be one of the big surprises if the share price takes off and short-sellers are squeezed out of the trade.
Analysts have price targets ranging from $22 each on the low end to as high as $45 per share over the next year and you get a 3.5% dividend while you invest.
We’ve still got one more cheap stock to highlight, the least expensive in the list in fact, but I want to show you two more signals I watch for picking these investments.
First is, as you’ve heard me talking about, the short ratio which is the percentage of the shares available that are borrowed and sold short by sellers.
So when an investor thinks the price of a stock will fall, they can borrow the shares and sell them to someone else at the current price. This means they have to buy them in the market later to be able to clear that borrowed account.
Of course, the idea is that when they go back into the market later, the share price will be lower and so they make money on the difference between selling at that previous price and the current lower price.
You can find the short ratio on any investing platform and how this helps me find cheap stocks is as a contrarian measure.
If you think about it, cheap is just a perspective on the stock price. You’re saying the shares are worth more when the market says it’s not. And the higher that short ratio, so the higher percentage of the shares sold short, then the higher conviction the market has in thinking the shares are overpriced or at least not cheap.
Another reason why I like high short ratios in my value stocks is because if the price does climb, especially if it jumps on something new, then those short sellers get scared out of their trade. They rush into the market to buy those shares and clear their account before the price goes any higher…and that rush of investors, in turn, causes the shares to go even higher.
The second thing I’m watching here, and this is how it ties to Robinhood, is I’m looking at the number of Robinhood investors holding the shares. This is another contrarian measure because I want to see stocks where fewer investors are holding the shares or maybe just a flat or declining interest.
For example in shares of Viacom, while about 21,000 Robinhood investors hold the stock, you can see the interest has been pretty flat for the last few months. Similarly, in another stock we’ll look at, AIG, only 4,500 investor accounts hold it so still the potential for an increase in investor interest.
And AIG is our next stock we’ll look at and I really like this one. I recommended it and put it in our dividend portfolio last April and the shares are already up 25% but this one has room to run.
In fact, AIG is one of the top ten stocks recommended by analysts with an average price target that’s nearly double the current.
The company took a hit on Coronavirus claims last quarter but we’re seeing improvement each quarter in catastrophe claims as well as the financial services side. Management is working through its plan to shave a billion from operating costs and that’s going to support earnings for the next year or two.
Shares trade for just 0.59-times on a price-to-earnings growth ratio and just 11-times on that traditional PE ratio. It’s not a heavily shorted stock but still is trading at less than half its 52-week high and pays you a 4.3% dividend yield while you wait for shares to rebound. Of the 10 analysts surveyed here, price targets range from $32 per share at the low end to as high as $44 each over the next year, so another one with unanimous opinion on a higher price.
There are cheap stocks to buy still but you have to know how to find them. Whether popular Robinhood stocks or on other platforms, use this strategy to find value stocks that will make you money investing.