Here are three stocks under $3 that are trading near their 52-week lows. While low-priced stocks can be risky, they can also be potential multibaggers and intriguing turnaround investments.
Baytex, a potential two-bagger
At the top of our list is oil-weighted energy producer Baytex Energy (TSX:BTE)(NYSE:BTE), which is down 55% over the past year.
The market has been very harsh with oil and gas producers like Baytex, which are more leveraged. The company’s debt-to-equity ratio and debt-to-asset ratio are about 1.1 and 0.52, respectively. The bigger these ratios are, the more leveraged the company is.
Over the trailing 12-months, Baytex generated $555 million of operating cash flow. At the end of the first quarter, its cash-flow-to-debt ratio was 0.26. Thus, it could pay back its debt in less than four years if it wanted to. However, the company is pretty much fully reinvesting its cash flow back into the business.
At $1.93 per share as of writing, Baytex trades at an all-time low valuation of about 36% of book value. The stock was trading at a peak of about $6 per share as recently as 2018. If energy prices improve, the stock can trade at about $5 per share from a higher book value and an expansion of the price-to-book multiple, which would make it a two-bagger, or more specifically, 159% upside from current levels!
BTE Price to Book Value data by YCharts
Birchcliff, a potential five-bagger
Next up we have gas-weighted energy producer Birchcliff Energy (TSX:BIR), down 44% over the past year.
The company’s debt-to-equity ratio and debt-to-asset ratio are about 0.62 and 0.38, respectively. The lower these ratios are, the less leveraged the company is.
Over the trailing 12-months, Birchcliff generated more than $327 million of operating cash flow, and it paid out less than 11% of the cash flow as dividends.
At the end of Q1, its cash-flow-to-debt ratio was 0.48. It could therefore back its debt in about two years. The company can also easily pay its interest payments, which totalled less than CAD$30 million in the last quarter.
At $2.62 per share as of writing, Birchcliff offers a yield of 4% and trades at an all-time low valuation of about 40% of book value. At a cycle peak, the stock can trade at about two times the book value, which implies a high target price of $13.11 or a potential five-bagger!
BIR Price to Book Value data by YCharts
Bonavista, a potential seven-bagger
Finally, we have gas-weighted energy producer Bonavista Energy (TSX:BNP), which is down 71% over the last 12 months. On May 2, the board suspended the company’s dividend to preserve capital. The dividend cut explains the draw down of about 57% since May as income investors exited the stock.
At $0.42 per share as of writing, Bonavista now trades at a dirt cheap valuation of about 7% of book value! If energy prices improve, the stock can trade at about $3 per share from a higher book value and an expansion of the price-to-book multiple, which would make it a seven-bagger or more specifically, 614% upside from current levels!
BNP Price to Book Value data by YCharts
The company’s debt-to-equity ratio and debt-to-asset ratio are about 0.90 and 0.47, respectively. The lower these ratios are, the less leveraged the company.
Over the trailing 12 months, Bonavista generated more than $269 million of operating cash flow, of which 74% was reinvested back into the business.
At the end of Q1, its cash-flow-to-net-debt ratio was 0.34. So, it could pay back its debt in about three years if it wanted to.
Foolish takeaway
Baytex, Birchcliff, and Bonavista are three stocks under $3 that are worth investigating as potential multibaggers! Do more research to determine whether they’re a good fit for your investment style and risk tolerance before considering a position.
