After an incredible bull run, the market overall looks priced for perfection. There are still cheap stocks out there; you just need to look in the right place.
If you’re searching for bargains, start with the stocks below.
The ultimate cheap stock
For years, BlackBerry (TSX:BB)(NYSE:BB) was the laughing stock of the market. After attaining a 20% global market share for smartphones in 2008, the company burned through billions of dollars as its brand collapsed. Today, nearly no one uses a BlackBerry phone.
But this is no longer the story of a smartphone manufacturer. Today, BlackBerry doesn’t produce a single phone. It’s pivoted from hardware to software, with a particular focus on a lucrative corner of the market.
“BlackBerry is specifically focused on cybersecurity software, which should be one of the biggest growth engines for the sector over the next decade,” I recently explained. “Its Cylance division, for example, can detect threats before they happen by using advanced artificial intelligence networks.”
Despite a bright future and a revamped business model, BlackBerry stock still trades at a 50-70% discount to its cybersecurity software peer group. Jumping in now provides the most upside for risk-tolerant investors.
High risk, high reward
Air Canada (TSX:AC) is a controversial stock. Some analysts think shares are about to double, back towards their historical highs. Others thinks the company will ultimately go bankrupt, folding under the pressure of COVID-19.
What’s the truth? That depends on your view of the future.
This is certainly a high-risk, high-reward scenario. Get it right and you can double your money. The trick is determining whether the COVID-19 pandemic is behind us. We have early signs that passenger demand is picking up, albeit from horrendous lows. Last year, Air Canada flew at less than 10% of total capacity.
If the pandemic is actually behind us, expect demand for air travel to soar this year. That’ll take bankruptcy risk off the table, and may allow Air Canada to consolidate the market. But if we get another coronavirus surge or economic setback, this stock will have been cheap for a reason.
This is your best bet
I love Shopify (TSX:SHOP)(NYSE:SHOP) stock, even though few people would call it cheap at 48 times sales. But if you understand this company, you’ll know that it’s deserving of the premium. Despite always having a steep valuation, shares have risen 4,000% since going public in 2015.
The secret is that Shopify is a platform business, which often is winner takes all. Just look at Amazon. That stock has been surprising the market with impressive growth rates for decades.
“Unlike Walmart, currently weighing whether to spend additional billions after the billions it has already spent trying to attack Amazon head-on, with a binary outcome of success or failure, Shopify is massively diversified. That is the beauty of being a platform: you succeed (or fail) in the aggregate,” explained Ben Thompson, founder of Stratechery.
Few people understand that Shopify’s long-term growth potential will make the current valuation look like a steal. Use this ignorance to your advantage.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Shopify, and Shopify. The Motley Fool recommends BlackBerry and BlackBerry and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Fool contributor Ryan Vanzo has no position in the companies mentioned.