Subscribe to Entrepreneur for $5
Subscribe

3 Large Caps Under $25 With 25% Upside

Regardless of what tags we put on low-priced stocks, they are a popular group among retail traders because their perceived gains are bigger.

By
This story originally appeared on MarketBeat

If stocks trading less than $5 are called penny stocks, then perhaps those under $25 should be called dime stocks or nickel stocks. Regardless of what tags we put on low-priced stocks, they are a popular group among retail traders because their perceived gains are bigger.

Depositphotos.com contributor/Depositphotos.com - MarketBeat

Generally speaking, there is a correlation between a company’s stock price and market cap. Penny stocks are typically of the micro-cap variety, while high priced stocks are usually large caps.

As with other aspects of investing, there are some exceptions. To some investors, finding low priced stocks with high market caps offers the best of both worlds—good bargains and lower risk profiles.

Within the S&P 500, stocks that are trading below $25 are few and far between especially given the benchmark’s recent return to record highs. About two dozen names fit the bill. These are three that analysts say have at least 25% upside.

Will Barrick Gold Stock Rebound?

Barrick Gold (NYSE: GOLD) is back below $20 after climbing above $30 last summer. The downturn has naturally coincided with a dip in gold prices which have retreated from all-time highs above $2,000 an ounce.

The fortunes of gold and gold producers are closely tied to the movements of the U.S. dollar. The two share an inverse relationship so the recent strengthening of the greenback has weakened global demand for gold. And since the world’s supply of gold is fairly constant, demand is the key driver of this supply-demand dynamic.

Gold demand also relates to its perceived value as an inflation hedge. So, with the rise in consumer and producer prices turning out to be more persistent than expected, some economists say gold prices are about to recover. Although if the Fed and other central banks raise rates to combat inflation, this could counteract the appeal for gold.

Most analysts see gold prices trending higher or at last remaining elevated. Even at current levels, low-cost gold producers like Barrick Gold can turn solid profits. The company’s cost of sales is around $1,050 an ounce which has the Street forecasting EPS up 7% to $1.24 in 2022. This means that Barrick Gold is trading at 16x next year’s earnings. Considering the midpoint of its historical P/E range is 24x, the stock looks like a golden buy opportunity.  

Is it a Good Time to Buy Carnival Stock?

Carnival (NYSE: CCL) rode the reopening trade to great lengths this summer before rising delta variant concerns dampened enthusiasm about encouraging booking trends. Pandemic conditions have since improved, and the stock is showing signs of life again trading back above the $20 level.

The cruise line operator’s advanced bookings are the main reason to get excited about the stock. When it reported preliminary third-quarter results late last month, management noted that advanced bookings for the second half of next year were already ahead of 2019 when they were “very strong”. Stronger than very strong is a great sign of things to come.

Not only are consumers coming back on board but Carnival is doing a good job of righting the ship that is its financial health. It has been selling older ships in favor of purchasing newer ones to make it fleet more fuel-efficient and lower its costs. Annual interest expense has been lowered by $250 million and slowly improving cash flow bodes well for debt reduction.

Analysts are expecting the cruise line industry to be in much better shape in 2022. Carnival is among the companies forecast to return to profitability. Rising fuel costs are a near-term threat, but overall, it should be smoother sailing ahead. Of the five analysts that have provided a recent update on Carnival, the average price target is around $29 including Credit Suisse which sees the stock nearly doubling to $41.

What Does Invesco Stock Offer Exposure To?

On Monday, Invesco (NYSE: IVZ) reported third-quarter earnings that topped the consensus estimate. Thanks to rising equity markets, asset under management (AUM) rose to more than $1.5 trillion and fund inflows were positive. The stock has since rallied back to the $25 level and at least two analysts think $30 is near.

In the wake of the Q3 report, BMO Capital maintained a ‘market perform’ rating despite a $33 price target that implies 29% upside even after the post-earnings rally. Citigroup took a more bullish stance calling Invesco a ‘buy’ and giving it a $35 target.

Where Invesco goes from here will depend on how the capital markets fare heading into the new year. While the global economy must sort through challenges like supply chain issues and labor shortages, improving pandemic conditions should provide a major tailwind. As we’ve seen in the early weeks of the third-quarter earnings season, companies are finding news ways to deliver better than expected profits in the unusual operating environment.

Invesco represents a good way to gain exposure to not just rising global equity markets but fixed income, the popularity of exchange-traded funds (ETFs), and alternative asset classes. The days of this stock trading in the $20’s appear to be winding down and a return to the $40’s not too far away.