If you have time, patience, and some extra cash, I have a couple of cheap stock ideas for you. These stocks have little in common, except that they’re leaders in their industry and very cheap. While there’s no guarantee that these stocks will be the outperformers that I believe they will be, each offers an attractive risk-reward relationship.
In this article, I will explore two cheap stocks that I believe will deliver strong returns. With a little patience and conviction, you can own these stocks to profit in the long run.
Cineplex: This stock won’t remain cheap for long
Cineplex Inc. (TSX:CGX) is Canada’s largest movie exhibition company. It’s also an entertainment company, with an amusement business that accounts for approximately 30% of its total revenue. While some may believe that the movie exhibition industry is dead, recent results out of Cineplex say otherwise.
August box office revenue was the third-highest of all time, with $68 million in revenue. This represented 120% of 2019, or pre-pandemic, levels. Similarly, for July and August combined, Cineplex’s box office and concession revenues were 121% of 2019 levels. Attendance was 99%of 2019 levels, and adjusted EBITDA was over 160% 2019 levels.
Admittedly, one summer does not make an investment thesis. However, these results are quite impressive. And they go against what the naysayers have been saying for years now – that movie theatres will not survive streaming. Not only has Cineplex survived, but it’s thriving.
In terms of valuation, Cineplex stock is trading at less than 8 times next year’s consensus earnings estimate.
Well Health Technologies: Cheap with abundant room for growth
The other cheap stock that has the potential to deliver strong long-term returns is Well Health Technologies Corp. (TSX:WELL). Well Health is an omni-channel digital health company, offering digital healthcare solutions globally. It’s also Canada’s largest outpatient medical clinic network and telehealth provider.
Well Health has been delivering record results for many quarters now. In its latest quarter, the company reported a 22% increase in revenue to $170.9 million, and a 16% increase in adjusted EBITDA. As a result of this record performance, the company increased its revenue and adjusted EBITDA guidance once again, bringing it closer to its target of reaching $1 billion of revenue in two years.
The health care industry is one of the last industries to digitize. And judging by Well Health’s results, this digitization is sorely needed and really welcomed. This transformation brings many benefits, both for healthcare providers and their patients. For example, digital billing systems lessen the administrative burden, freeing up more time to devote to patient care and driving efficiencies.
In terms of valuation, Well Health is in the beginning stages of its long-term growth plan. If the company does succeed in achieving $1 billion in revenue in two years, earnings will rise significantly. And if the growth continues on the same trajectory, Well Health Technology stock should benefit accordingly.
The bottom line
In this market today, it’s increasingly difficult to find attractive opportunities to invest in. The two cheap stocks I discussed in this article, however, have the potential to deliver solid returns.