Investing in small-cap stocks isn’t for the faint of heart. Many are attracted to smaller companies because of the potential for enormous gains: If a $1 billion company becomes a $2 billion company, your investment has doubled. In theory, that seems like a much easier hurdle to jump than a $100 billion company becoming a $200 billion company.
But in practice small-cap investing can be fraught with risks, too. Smaller companies don’t have the resources that bigger ones do, and can be crushed if they go head-to-head. Smaller-cap companies that are considered "hot stocks" often have pricey valuations as well.
The stock that I’m introducing this month — and buying for my own portfolio — is no exception: It trades for over 100 times earnings, and 100 times free cash flow.
And yet, I think investors looking to allocate money to smaller companies should consider putting their own cash behind these stocks. When Motley Fool trading rules allow, I’ll be doing just that. Here’s why.
Best Low Price Stocks To Invest In Right Now: Opko Health Inc(OPK)
Opko Health didn’t see its stock pop as much as ARMO BioSciences, but the biotech did enjoy a big gain of 42% this week. The catalyst for Opko was the company’s better-than-expected first-quarter results announced on Tuesday.
Wall Street analysts expected Opko to report Q1 revenue of nearly $237 million. The company reported revenue of close to $255 million. But while that figure beat what analysts projected, it came in right in line with what Opko’s expectations.
The best news from Opko’s quarterly update for investors was that chronic kidney disease drug Rayaldee appears to be picking up momentum. Opko stated that Q1 total prescriptions for the drug jumped 731% year over year and were 38% higher than the fourth quarter of 2017. The company also expects that its laboratory diagnostic business, Bio-Reference Laboratories, will see improvement this year.
Best Low Price Stocks To Invest In Right Now: Dorchester Minerals, L.P.(DMLP)
Dorchester Minerals LP (NASDAQ:DMLP) is an intriguing play but also among the highest-risk investments on this list. Dorchester owns royalties and NPIs (net profits interests) in several hundred properties across 25 U.S. states. From a fundamental screen, DMLP looks attractive, with a 7.4% dividend yield and a little bit of net cash (along with no debt).
But because DMLP’s distributions are coming from royalties, those distributions can be exceedingly volatile. As the shale bubble burst, for instance, DMLP’s quarterly distribution dropped from $0.48578 to $0.16743 in just six months. Given that the royalties are based both on price and on the drilling on its land, there’s a huge reliance on crude oil prices – and a large risk if those prices drop, as seen in 2015-2016.
That said, for those investors bullish on oil and gas, DMLP is an intriguing play. Unlike a lot of royalty trusts, DMLP doesn’t have a set date for liquidation. In fact, it can use its shares to actually acquire more royalties and NPIs, creating some level of growth (albeit with dilution).
Again, this is a risky play – and one that needs higher crude prices to move higher. Investors uncomfortable with that risk should look to plays like Exxon Mobil Corporation (NYSE:XOM) or Chevron Corporation (NYSE:CVX), whose downstream operations provide an internal hedge.
For investors bullish on crude and natural gas, however, DMLP is an interesting direct play – and, for now anyway, a nice source of income.
Best Low Price Stocks To Invest In Right Now: FireEye, Inc.(FEYE)
Another security play worth a look is one-time momentum darling FireEye Inc (NASDAQ:FEYE). Shares are still roughly 70% below their peak of $80, immediately after a late 2013 IPO, but that just means early investors were overenthusiastic and current investors are too pessimistic.
That adds up to a big opportunity for those who buy now and plot a potential tripler in FEYE.
Amid constant hacking concerns for corporate America and the U.S. government, cybersecurity will be a hot topic for some time. And hot topics always lead to big M&A targets, particularly among private equity firms. With a valuation that’s around $3 billion, this is a pretty digestible play for the big boys out there like Cisco Systems, Inc. (NASDAQ:CSCO) and Intel Corporation (NASDAQ:INTC) that have a focus on security software these days.
Private equity is sitting on record cash right now, and FireEye has constantly been mentioned by the big players in the space.
FEYE could easily be worth at least $30 a share when you bake in a buyout premium. But even if acquisition rumors don’t bear out in the short-term, FireEye is making big strides to prove its standalone power. The company admittedly is not yet profitable. But it has a nice cash cushion and the consensus estimate for fiscal 2018 earnings is a one penny loss – so just a meager surprise could move this stock out of the red and into the green.
If an upside surprise happens, FEYE could break out. That makes this a higher-risk but high-reward investment in the tech sector.
Best Low Price Stocks To Invest In Right Now: Pfizer, Inc.(PFE)
Pfizer Inc. (NYSE:PFE) too has a pleasing earnings profile with the company having consistently outpaced expectations in all the last four quarters with an average beat of 4.97%.
The consensus mark for first-quarter bottom line is pegged at 73 cents per share. Pfizer is scheduled to release financial figures on May 1.It looks perfectly poised to repeat this winning streak this time around as well. This New York-based player is Zacks #2 Ranked and has an Earnings ESP of +2.62%.
The consensus mark for first-quarter bottom line is pegged at 73 cents per share.
Best Low Price Stocks To Invest In Right Now: Cigna Corporation(CI)
Health insurer Cigna Corporation (NYSE:CI) beat Q1 2018 earnings by 21% — its EPS excluding one-time items was $4.11 compared to the $3.39 consensus — prompting the company to up its EPS outlook for 2018 to $13.05 a share at the midpoint from its previous guidance of $12.65.
On the horizon, Cigna’s working on acquiring pharmacy benefits manager Express Scripts Holding Co (NASDAQ:ESRX) for $52 billion; investors are concerned the deal won’t get approval from anti-trust regulators.
Cigna CEO David Cordani believes the acquisition will help it cut medical costs for its customers. In 2017, medical costs rose by 3%. It expects those costs could rise by as much as 5% in 2018. It would like to get medical cost increases down to CPI inflation.
In the first quarter, membership in its health care plans increased by 3%. It now has 16.2 million members. With revenues rising almost double digits with healthy increases in earnings, with or without Express Scripts, I see Cigna doing just fine.
Buy on current weakness.