The markets are moving higher after a cooler reading on inflation stirs hopes that interest rates will be cut at some point in 2024. However, with many stocks still looking significantly overvalued, investors are on the hunt for undervalued cheap stocks.
A cheap stock can be measured by fundamentals like its price-to-earnings (P/E) ratio. However, in many cases, a stock’s price is the barometer of cheap or expensive. In this article, we’re looking at stocks trading for $20 or less.
At this price, investors get the benefit of accumulating a significant amount of shares for a modest investment. Another advantage of finding undervalued cheap stocks under $20 is that a little price movement can have significant benefits for your portfolio. Here are seven stocks that look undervalued but have catalysts for future growth.
Clean Energy Fuels (CLNE)
Clean Energy Fuels (NASDAQ:CLNE) stock is down 42% in the last 12 months, and it’s not hard to understand why. The company’s primary business comes from renewable natural gas that the company provides for heavy-duty trucks, buses and other large vehicles in North America.
But natural gas prices have been kept in check, along with the price of oil. That could be changing, however, as surging demand for natural gas seems inevitable.
Many analysts predict the demand for data centers to support artificial intelligence (AI) applications will require amounts of energy that current renewable energy resources will be insufficient to meet. Natural gas may be able to fill that need.
And while Clean Energy Fuels isn’t directly involved in providing natural gas for data centers it’s a case of a commodity being the rising tide that lifts all boats. In this case, the increased demand for natural gas will lift the entire sector.
Clean Energy Fuels is currently a penny stock trading at just $2.62 per share. But analysts don’t believe it will be a penny stock for long. The consensus price target of eight analysts for CLNE stock is $7.00, 167% higher than its current price, and is listed as a Strong Buy.
Kinder Morgan (KMI)
The theme of rising demand for natural gas will also be a catalyst for Kinder Morgan (NYSE:KMI). This is a midstream company that owns an expansive network of oil and natural gas pipelines in the United States and Canada.
And there’s another reason to believe that natural gas prices may be moving higher. As Josh Enomoto wrote, you can feel the geopolitical screws tightening as it relates to oil. Russia’s war against Ukraine and rising tensions in the Middle East give investors a reason to consider energy stocks that will be a critical link in the supply chain.
KMI stock is up 14% in the last three months. However, over the last three years, the stock has been range-bound. That’s what makes this a critical moment for one of the undervalued cheap stocks. At around $19.60 per share, the stock is butting up against what has been a level of resistance. If the stock breaks out, analysts may start to raise their price targets above the consensus target of $20.31.
DigitalBridge Group (DBRG)
DigitalBridge Group (NYSE:DBRG) gives you another way to invest in the increased demand for data centers. Specifically, DigitalBridge is a real estate investment trust (REIT) that invests heavily in data centers. The company manages $75 billion in digital infrastructure assets.
The bullish case for DigitalBridge will depend on profitability. That will likely come in time as the company (i.e., the asset manager) earns a fee on every dollar of equity it manages.
That said, the company is already posting revenue and earnings growing year-over-year. That adds credibility to the analysts’ projections for 38% earnings growth in the next 12 months. If that’s the case, DBRG stock may shoot past its 52-week high as the analysts suggest it will.
AT&T (T)
It could be said that AT&T (NYSE:T) isn’t your father’s AT&T. But few people would imagine that T stock is closer to your grandfather’s AT&T. But that’s the case, as the company has simplified its business model. It went far afield from its core phone business. And as the world went digital, AT&T got leapfrogged.
The final indignity for shareholders was when the company halved its dividend after spinning off its TimeWarner business. But with T stock down about 35% in the last 10 years, it may be time to give the company a closer look.
Streamlining the business has allowed the company to slowly but surely lower its debt. In fact, in the company’s first quarter 2024 earnings report, AT&T had the lowest amount of debt on its balance sheet while increasing its free cash flow to $3.1 billion, $2.1 billion more than in Q1 2023.
That brings us back to the dividend, which still carries a yield of 6.42%. The company hasn’t raised it in over a year, but it’s one way the company could reward shareholders.
Nintendo (NTDOY)
By traditional metrics, such as the price-to-earnings (P/E) ratio, Nintendo (OTCMKTS:NTDOY) doesn’t immediately come across as undervalued. Its P/E ratio of 20.4x is in line with the broader market average.
However, what sets the company up as one of the undervalued cheap stocks comes down to a company that knows what it does well. In this case, Nintendo generates 90% of its revenue via its popular Nintendo Switch device.
The company is preparing to launch the next generation of the Nintendo Switch before March 2025. It’s been nine years since the Switch has had a refresh. That should create strong pent-up demand for the device for its loyal customer base.
That expectation is likely a key reason why the consensus price target of 25 analysts is $57.45. That’s a whopping 319.9% gain from the NTDOY stock price on May 16, 2024.
Barrick Gold (GOLD)
Investing in commodities is challenging. Investing in mining stocks tied to the underlying commodities is even more difficult. That’s been the case with Barrick Gold (NYSE:GOLD), one of the world’s leading gold mining companies.
The company has one of the largest portfolios of Tier One gold and copper assets in the mining industry. In its Q1 2024 earnings report, Barrick reported gold production of 940 thousand ounces. That was lighter than the prior quarter due to what the company termed “planned maintenance.”
If you look at the spot chart of gold and the GOLD stock chart, you’ll notice both were trading in a range over the last two years. Gold appears to be breaking out of that range and is soaring to what some experts believe will be $2,600 an ounce. But mining stocks are only beginning to move higher.
The latest readings on inflation don’t change the long-term narrative for owning gold or gold stocks. Many investors can see the U.S. dollar continues to drop in value. That’s where gold shines. It’s also why investment banks can’t buy enough of it right now.
Prosus (PROSY)
The simplest way to describe Prosus (OTCMKTS:PROSY) is a company that invests in technology. The company operates internet platforms in food delivery, classifieds, payments & fintech, EdTech and retail businesses.
As was the case in 2023, Tencent Holdings (OTCMKTS:TCEHY) is the largest holding of Prosus, which owns 25% of the Chinese company. As Will Ashworth wrote in 2023, Prosus has a lot of moving parts that make it difficult to evaluate.
Nevertheless, the argument for PROSY stock to be included as one of the undervalued cheap stocks comes from the company’s latest investor presentation in which Prosus shows strong growth through each of its businesses. And the company is now accelerating its forecast for profitability into the second half of this calendar year.
If that happens, the consensus price target of $9.04, a 13.8% gain, will likely move higher.
On the date of publication, Chris Markoch 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.
