In theory, a stock's absolute per-share price shouldn't matter. An investment's upside is ultimately rooted in the company's potential to grow its bottom line.
However, there's evidence to support the idea that lower-priced equities as a group tend to outperform the broader market. That said, investors should apply some common sense to their stock-picking regimens rather than simply stepping into stocks because of their cheap per-share prices.
With that in mind, here are three top stocks you can buy now for less than $10 per share. Notice that none of them are the tiny, weak-foundationed start-ups you might normally expect to have such low sticker prices.
Image source: Getty Images.
1. Zynga
Zynga (NASDAQ:ZNGA) hasn't been a particularly great performer of late. It has fallen nearly 40% from its February peak above $12 per share to its current price near $7.60; a large chunk of that decline came amid last month's post-earnings plunge of more than 18%. The company swung back to profitability in the second quarter, earning $28 million versus a loss of $150 million during the pandemic-crimped prior-year quarter. Guidance for the quarter currently underway, however, left investors unimpressed. Zynga is now calling for a Q3 adjusted EBITDA of only $150 million and a net loss of $110 million, which suggests that its casual video gaming business is contracting rather than expanding.
As it turns out, consumers appear to be a little burnt out on playing mobile games now that the world is (somewhat) reopening and more entertainment options are becoming available again.
It's arguable that investors have overreacted to that premise though, driving Zynga shares well below where they should be. Even after the wave of downgrades and lowered price targets that followed the release of last quarter's report, the analyst community still collectively rates Zynga a buy, and gives it an average target price of $12.08. That's more than 50% above where the stock closed trading Wednesday. Also bear in mind that Zynga now boasts five consecutive years of revenue growth, and that streak is expected to persist through this year and 2022.
The point being, there's a lot to like here even if the market's not seeing it right now.
2. Plains All American Pipeline
Most investors on the hunt for good sub-$10 stocks are looking for underappreciated bargains. And Plains All American Pipeline (NASDAQ:PAA) is certainly a more compelling prospect now that its 25% pullback from June's high has dragged it under the $10 mark, especially in light of the fact that it's likely to deliver full-year earnings on the order of $1 per share.
Earnings, though, are not the prime reason you might want to step into this stock now. Rather, it's because the recent share price pullback has pumped up its dividend yield to an incredible 7.8%.
Granted, management has greatly pared back the annualized payout from its 2015 peak in excess of $3 per share; through the first two quarters of 2021, Plains All American Pipeline has only dished out $0.36 worth of dividends (or as they're called in this case, distributions). Much of that contraction was a reflection of debt-powered expansion plans that went perfectly awry. The past several years have been tough for the entire oil and natural gas sector, but they've been especially challenging for smaller, poorly capitalized pipeline companies that get paid to transport hydrocarbons from point A to point B. Plains All American Pipeline and its limited partnership counterpart Plains GP Holdings (NASDAQ:PAGP) are part of that group.
The organization may finally be ready to recover though. June's agreement to sell its gas storage assets will put $850 million into its coffers, but more than that, the deal is part of a major effort to deleverage Plains All American Pipeline's balance sheet. The stock, income, and cash distributions may all well be at their "rock bottom" levels right now.
3. ContextLogic
Finally, add ContextLogic (NASDAQ:WISH) to your list of stocks to watch that are priced under $10 per share.
ContextLogic owns e-commerce site Wish.com, which boasts more than 90 million monthly shoppers and over half a million registered sellers. It has a reputation for selling lower-quality products that don't quite live up to their advertised descriptions, but that hasn't really stymied its growth. Indeed, revenue has grown every year since 2015, from $144 million then to $2.5 billion in 2020. This year's top line is expected to come in below last year's, when the earlier stages of the COVID-19 pandemic induced a surge in boredom-induced online shopping sprees.
Looking at the bigger picture, however, ContextLogic still appears to be on pace to swing to profitability in 2023 or 2024 despite last quarter's earnings miss and despite last month's subsequent spate of analyst downgrades.
Simply put, the market's making the same mistake here that it made with Zynga -- pressing the stock's value well below what makes sense. Even after last month's downgrades, the current consensus target price for ContextLogic stands at $9.83 -- well above the $5.91 at which it closed trading Wednesday. The sell-off has continued, too -- shares set a new record low on Tuesday, just 10 months after the company went public, and nine months after it peaked at $32.85. As long as investors are willing to let this stock's slide continue, it will be a risky stock to buy.
Nevertheless, ContextLogic is a name worth adding to your watch list for the day when it starts making bullish progress again.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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