At the end of last year there were plenty of stocks to buy for $20 a share. The S&P 500 ended 2022 down nearly 20%. The Nasdaq Composite index lost a third of its value. Finding bargain stocks wasn’t all that hard.
It’s a different story this year with most indices well off their lows and within 10% of hitting new all-time highs. The roller coaster ride makes it more difficult to find cheap stocks. But difficult does not mean impossible. Short-term volatility is all a part of the game. Over the long haul, the stock market is still the best way to accumulate generational wealth. Even better than gold, bonds, real estate or cryptocurrencies.
Yet low-priced stocks are often cheap for a reason. A damaged business can send share prices careening lower. But sometimes the market makes mistakes. The wisdom of crowds gets it wrong and misreads a short-term hiccup as a company’s death rattle. That’s where opportunity lies! Lets look at some bargains with three stocks to buy for $20.
Arcos Dorados (ARCO)
The largest operator of McDonald’s (NYSE:MCD) restaurants in Latin America is the first stock under $20 you should consider. Arcos Dorados (NYSE:ARCO) runs more than 2,300 restaurants in 20 Latin American and Caribbean countries. It generates $3.5 billion in annual sales and Wall Street expects it to grow earnings at a 43% clip every year for the next five years. That’s exponentially faster than its rate of growth over the past five years. It also explains why shares trade so low. ARCO investors saw their money go nowhere over the past decade.
Not all of Arcos Dorados problems are of its own making. Not even of McDonald’s making, for that matter. Currency devaluations in the Bolivian Real and Argentine Peso hurt the restaurant operator. Those are two of its biggest markets. Brazil accounts for almost half of all annual revenue. The Argentine Peso depreciated 40% against the U.S. dollar in 2020, 22% in 2021, and a whopping 72% last year.
But management has to share some blame. The company was heavily indebted before management got serious. Now net financial debt is down to $425 million in Arcos Dorados fiscal first quarter compared to $771 million in 2013. Sinking currency valuations compared to the U.S. dollar caused many to doubt Arcos Dorados could afford to repay its loans. But it was able to negotiate a turnaround plan that allowed the restaurant operator to focus instead on growth.
American Eagle Outfitters (AEO)
The stock market also put specialty retailer American Eagle Outfitters (NYSE:AEO) on sale earlier this month. Second quarter earnings matched top line expectations and beat on the bottom line, but the stock sunk anyway. American Eagle previously raised its guidance for the period. It said revenue would be essentially flat compared to prior guidance calling for single-digit percentage declines. Revenue actually rose slightly year-over-year to a record $1.2 billion, and now it raised guidance again for the third quarter and the full year.
But the real star continues to be its lingerie brand Aerie. The apparel company is riding the wave of popularity for Aerie. Sales rose to $380 million for the period, keeping the line on track to become a $2 billion brand for American Eagle. It is now breaking out into new verticals with an activewear extension called Offline by Aerie.
The retail stock is down 12% from the highs it hit at the end of August. Shares ran up over 21% in 2023 until the earnings report.
Yet the stock is bargain basement priced. American Eagle trades at just 10 times earnings estimates and goes for a fraction of its sales. It is also valued at a deeply discounted seven times free cash flow.
AT&T (T)
Telecom giant AT&T (NYSE:T) is also trading at incredible discounts its share price is at a level not seen in two decades. The stock also goes for deep bargain valuations. This venerable company trades at six times estimates, a fraction of sales and less than six times free cash flow.
There are a mix of reasons for the telecom’s selloff. When AT&T spun off the Warner Media entertainment division, it cut its dividend in half. That strengthened its remaining payout and business as it focused more narrowly on just its core operations.
However, the stock was hit again after The Wall Street Journal reported on potential liabilities surrounding lead-lined cables buried underground. AT&T disputes those findings, but the market is waiting to see where the dust settles.
That’s okay, because it gives savvy investors the opportunity to snatch up a future big winner. The ongoing 5G network infrastructure rollout is a huge catalyst for growth going forward. Increased download speeds will lead consumers to consume even more data, one of AT&T’s most profitable segments.
Investors will look back years from now and wonder why so many missed the chance to buy into this cheap, but solid business when the stock traded for less than $20.
On the date of publication, Rich Duprey held a LONG position in T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
