So, you’ve saved up some cash and have looked at the market and thought perhaps there is a way to make even more. Well, you’ve come to the right place! Today, we’re going to show investors how to put that cash to work. To make it work for you instead of spending it all in one go. And that can be done through cheap stocks offering long-term rewards.
But what makes a stock a great long-term option? What makes it cheap? Let’s discuss those questions along with two options to consider.
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A cheap stock
There are first several metrics investors will want to consider to identify whether a company is cheap, or just a low share price. For that, we’re going to dig right into some fundamentals that have to do with price. First, we have the price-to-earnings (P/E) ratio, which compares the company’s share price with its earnings per share, where lower is considered undervalued. Price to book (P/B) is another ratio; it compares the market cap to its book value. The price-to-sales (P/S) ratio compares its market cap to revenue. Again, all of these ratios being on the lower end shows that investors aren’t valuing the company highly enough.
Then, there are bottom-line considerations. The debt-to-equity (D/E) ratio compares a company’s financial leverage by looking at how much total debt is covered by shareholder equity. Again, the lower the ratio, the better. Free cash flow (FCF) is another strong metric, looking at how much cash is generated by a company after expenditures. Finally, consider its profit margin, which is the percentage of revenue translated into profit after expenses. In this case, the higher, the better.
Some other considerations are whether the company has seen historic earnings growth as well as a stable dividend with steady increases. Overall, this will show a company’s strength.
CIBC stock
First up when it comes to cheap stocks is Canadian Imperial Bank of Commerce (TSX:CM). Granted, it might seem that this stock isn’t cheap given it’s trading at 52-week highs. However, it still offers a significant discount compared to all-time highs. Shares are currently down about 18% from those levels as of writing.
For metrics, CIBC stock checks all the boxes. It offers a low P/E ratio of 10.48 as well as a 2.67 P/S ratio and 1.3 P/B ratio. Its profit margin is as strong as the other banks at 29.5%, if not better, with free cash flow improving year after year.
Add in that Canadian banks, in general, have a strong history of coming out strong after downturns, with a long history of growth. That all counts if you’re looking for cheap stocks. So, CIBC stock is certainly one to consider; it now still offers a massive dividend yield of 5.27%.
Lundin Mining
Another strong stock to consider is Lundin Mining (TSX:LUN). The copper-focused miner has been expanding its operations further, and it won’t be slowing down anytime soon — especially with strong results coming in as the stock hit record copper production.
Shares are up an incredible 70% in the last year, but there is still value to be had — especially with shares still down 19% from highs reached a few years ago. Lundin stock currently trades at 31.29 P/E ratio, 2.25 P/S ratio, and 1.54 P/B ratio. It offers a 7.12% profit margin and a 23.15% D/E ratio, and free cash flow is significantly improving. During the fourth quarter, it achieved $116.8 million in free cash flow. This was a significant increase year over year, but even more of an increase compared to just the last quarter!
Overall, the company continues to impress, while still holding value. And with copper an essential part of our future no matter what infrastructure develops — from renewable energy to telecommunication — Lundin stock is bound to do well. Add in a dividend yield of 2.71%, and it’s one great deal.
