With the long-in-the-tooth bull market rolling along, it’s getting harder for investors to find undervalued stocks with great upside potential. Or rather, it’s more difficult because investors continue to look in the same place over and over again. Some of the more interesting stocks out there are trading for cheap, including the top stocks trading under $5 in April 2015, which I’ve listed here. Investors may want to add these stocks to their watch list.
Best Stocks in an Overvalued Market
Back in March, the bull market celebrated its six-year anniversary. Since early 2009, the S&P 500 has soared approximately 215%; while the Dow Jones Industrial Average is up almost 180%.
While most think the current bull market is based on consistent earnings and revenue growth, the fact of the matter is the bull market has more to do with the Federal Reserve’s unprecedented monetary policy and artificially low interest rate environment.
Earnings are up at a time when revenue is down, in part because of aggressive stock repurchase programs. And with interest rates hovering near zero, the stock market is basically the only place for income-starved investors to turn.
Investors have been plunking their money down on the stock market with reckless abandon. According to the CAPE ratio (a cyclically adjusted price-to-earnings measure), the S&P 500 is currently overvalued by around 65%. The last time it was at this level (or higher) was in 1999, just before the dotcom bubble burst. (Source: Yale University web site, last accessed April 14, 2015.)
Will the bull market continue unabated? Eventually, the stock market will correct itself. And when it does, investors will be in for a shock. When it comes to investing in this market, it’s important to look for financially solid companies trading under the radar.
Right now, there are a lot of great stocks out there trading for under $5.00 per share. Are stocks under $5.00 risky? Some are, yes. Any stock can be risky. Just talk to those who invested in so-called safe bets like Enron, Nortel, and Lehman Brothers.
It’s risky to invest in any stocks without conducting proper due diligence. Below are the top three stocks trading under $5 this month that might be worth doing a little more research on.
Top 3 Stocks Under $5 in April 2015
Arotech Corporation (NASDAQ/ARTX)
Arotech Corporation is a leading provider of defense and security products including multimedia interactive simulators/trainers and portable power solutions for military, law enforcement, municipal, and homeland security markets.
The company has a market cap of $75.0 million, a forward price-to-earnings ratio (P/E) of 12.12, $11.3 million in cash and cash equivalents, and working capital of $17.09 million.
On March 16, Arotech reported its financial results for the year ended December 31, 2014. The company announced that record annual revenues increased 17.0% year-over-year to $103.5 million. Full-year net income was up 60% at $3.5 million, or $0.15 per diluted share.
For fiscal 2015, the company estimates total revenue of $110–$125 million and adjusted earnings per share (EPS) of $0.31–$0.36, compared to adjusted EPS of $0.31 in 2014. (Source: Arotech Corporation, March 16, 2015.)
Flexible Solutions International, Inc. (NYSE/FSI)
Flexible Solutions International, Inc., together with its subsidiaries, is the developer and manufacturer of biodegradable polymers for oil extraction, detergent ingredients, and water treatment, as well as crop nutrient availability chemistry. Flexible Solutions also manufactures and markets specialty chemicals that slow the evaporation of water. The company’s technology can be applied to swimming pools, open water surfaces, and agricultural land.
The company has a market cap of $25.0 million, a forward P/E of 13.75, and an operating cash flow of $1.06 million.
On April 9, Flexible Solutions announced that first-quarter revenue increased 30% year-over-year to $4.96 million. (Source: Flexible Solutions International, Inc., April 9, 2015.)
Dan O’Brien, CEO of Flexible Solutions, commented, “We are pleased to announce a third straight quarter of double-digit revenue growth relative to the year earlier quarters. Growth occurred in all lines, both new and old, which is a testament to our product quality and our employees’ efforts.” (Source: Ibid.)
Complete financial results will be available by May 15, 2015 concurrent with its quarterly filings to the Securities and Exchange Commission (SEC).
Neonode Inc. (NASDAQ/NEON)
Sweden-based Neonode Inc. develops optical touchscreen technology that it licenses to original equipment manufacturers (OEMs) and original design manufacturers. Its multisensing technology is used in smartphones, tablets, e-readers, toys, and gaming consoles. Some of the company’s clients include Sony Corporation; Volvo Car Corporation; Barnes & Noble, Inc.; Kobo Inc.; Oregon Scientific, Inc.; Alpine Electronics, Inc.; and Amazon.com, Inc.
On March 12, Neonode announced that full-year revenue for the period ended December 31, 2014 increased 27% year-over-year to $4.7 million. Operating expenses increased 16% to $17.4 million for fiscal 2014 compared to $15.0 million for fiscal 2013. (Source: Neonode Inc., March 12, 2015.)
The company announced a full-year net loss of $14.2 million, or $0.36 per share, compared to a net loss of $13.1 million, or $0.37 per share for the 2013 fiscal year. Cash totaled $6.1 million on December 31, 2014 compared to $8.8 million on December 31, 2013.
“I am excited to announce that we recently signed an agreement with one of the largest PC OEMs where we, along with our partners, will deliver touch and proximity modules for their PC products,” said Neonode CEO, Thomas Eriksson. (Source: Ibid.)
“After 5 years of intense integration and development work we now have multiple automotive OEMs in production and more are coming to production during 2015 to begin shipping worldwide,” concluded Eriksson.