Lower-priced stocks tend to have smaller market-caps which means they have more room for long-term growth. These stocks also fit into smaller budgets which is great for investors who don't have hundreds or thousands of dollars to pour into the stock market. If you are looking for small stocks with the potential for big returns, you have come to the right place.
Here is a list of 3 top stocks currently trading under $10. The first pick, SmileDirectClub (SDC) is a teledentistry business set to beat the market because of its rapid top-line growth. The other two, Ford Motor (F 0.20%) and Spirit Airlines (SAVEQ -11.84%), are bets on the automotive and airline industry rebounds when the COVID-19 pandemic winds down.
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SmileDirectClub
SmileDirectClub is a small-cap healthcare disruptor with the potential for massive returns. The company designs and manufactures clear aligners and other dental equipment along with a teledentistry service that allows patients to connect with dentists over the internet. While SmileDirectClub generates most of its sales in the United States, the company is also expanding into other countries such as Canada, Australia, and Germany.
With a share price of $7.64 and a market cap of around $3 billion, SmileDirectClub trades at just over 4 times 2019 revenue. The stock looks undervalued because the company's sales are growing at such a rapid clip.
SmileDirectClub's Annual revenue grew by 77% from $423.24 million to $750.43 million in 2019. The company also held up well in the first quarter of 2020 with total revenue rising 11% from $177.74 million to $196.65 million year-over-year, despite the coronavirus pandemic. This is impressive because the company closed many of its stores in response to the crisis.
SmileDirectClub is poised for long term growth because of its highly disruptive business model that aims to replace traditional orthodontists with a cheaper and more convenient system. The company is becoming increasingly mainstream with over 1 million people treated, a presence in 3,800 Walmart stores, and recent partnerships with major insurers like UnitedHealthcare (UNH -0.38%), Aetna, and Anthem (ELV 0.03%).
Spirit Airlines
Spirit Airlines runs a low-cost business model mainly serving leisure travelers between South Florida, the Caribbean, and Latin America. With a share price of $9.75, it has a market cap of around $860 million -- making it one of the smallest domestic carriers in the United States.
Like most airlines, Spirit has had been hit hard by the coronavirus pandemic with shares collapsing by 75% year-to-date. But Spirit's low stock price is a big opportunity for investors to bet on a rebound in the airline industry because the company has a strong liquidity position that will help it survive the crisis and come back with a bang when the industry recovers.
Spirit reported $788.26 million in cash and equivalents along with $106.2 million in short-term securities in the first quarter. The company later announced a massive capital raise that included the sale of 20.13 million additional shares at $10 (worth $201.3 million) along with a public offering of $175 million in 4.75% convertible notes -- this adds up to $1.27 billion. Spirit also received a bailout from the U.S Treasury worth approximately $335 million in return for warrants exchangeable for 500,150 shares in common stock.
Altogether the company projects a cash burn of around $4 million per day which comes out to $1.46 billion in a year. This means the company can survive for over a year in this current environment without additional financing.
While equity dilution will put some pressure on Spirit's stock price, the extra cash will help the company survive through the crisis and deliver long-term returns to investors when the industry recovers. Encouraging data from the TSA suggests U.S travel volume is increasing, and a potential coronavirus vaccine would be a major tailwind for the industry in general.
Ford Motor Company
Trading at just $5.49 per share, Ford has seen better days. The legendary American automaker is reeling from the coronavirus pandemic with shares down around 41% year-to-date. This decline has sent the automaker's market cap as low as $21 billion which looks deeply oversold considering the company generated revenue of $155.90 billion in 2019 and has several major growth opportunities on the horizon.
Ford's problem is its extremely low margins. Out of $155.90 billion in 2019 sales, only $574 million translated to operating income. And out of that, only $47 million became net income -- giving Ford a profit margin of less than 1% for the year.
But the good news is that management is taking convincing steps to turn things around with a massive restructuring program first announced back in 2018. The strategy has seen ford discontinue most of its U.S sedan lineup in favor of more profitable trucks, SUVs, and sports cars. Two much-anticipated new cars, the Mustang SUV and the Ford Bronco are expected to be released later which will juice U.S. sales going forward.
Ford is also trimming the fat in its business through massive layoffs in the United States and Europe. And the company's troubled Chinese segment is showing signs of recovery with sales up a staggering 38.3% year-over-year in April. This suggests the Chinese auto industry is already bouncing back from the coronavirus pandemic.
