Many investors think that stocks trading under $5 are bargains, but this is not the case by any means. Oftentimes, a stock has fallen to those levels because of a weak financial performance by the company, or because it has flooded the market with too many of its shares.
One way to find a true bargain is to look for the stocks of companies who are profitable and trade at inexpensive valuations compared with their five-year averages. To make things even easier, I have found two stocks that meet these criteria perfectly, so let’s take a closer look at each companies’ first-quarter earnings results and their stocks’ valuations to determine which would fit best your portfolio.
Bombardier Inc.
Bombardier Inc. (TSX:BBD.B) is one of the world’s leading manufacturers of planes and trains. In the first quarter of fiscal 2015, its adjusted net income increased 12.6% to $170 million, its adjusted earnings per share increased 12.5% to $0.09, and its revenue increased 1% to $4.4 billion. At today’s levels, the company’s stock trades at just 10.6 times fiscal 2015’s estimated earnings per share of $0.23, which is inexpensive compared with its five-year average price-to-earnings multiple of 11.5.
Semafo Inc.
Semafo Inc. (TSX:SMF) is a Canadian-based mining company with gold production and exploration activates in West Africa. In the first quarter of fiscal 2015, it reported an adjusted net profit of $8.21 million, or $0.03 per share, compared to an adjusted net loss of $12.83 million, or $0.04 per share, in the year-ago period, as its revenue increased 92.4% to $74.02 million. At today’s levels, the company’s stock trades at 25 times fiscal 2015’s estimated earnings per share of $0.15 and just 20.8 times fiscal 2016’s estimated earnings per share of $0.18, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 25.5.
Which of these cheap stocks belong in your portfolio?
Bombardier and Semafo are two of the most attractive stocks trading under $5 in the market. Foolish investors should take a closer look and strongly consider initiating positions in one of them today.
