7 Best Stocks to Buy Right Now Under $20

Are you hunting high and low for the best stocks to buy under $20 for the long term that will yield better returns?

It’s no wonder many investors find stock market investing all Greek when it comes to the time to find the best stocks to buy right now under $20.The investors are really messed up with their heads finding the best stocks to buy now under $20 for the long term. When you are investing in the stock market to make money in the long run, you should perform a detailed analysis of any company, and carry out a disciplined investment approach.

How to pick the best stocks to buy now under $20?

Well, there is no hard and fast rule to pick the best value stocks under $20. When you are in a witch hunt for the best stocks to invest in for the long run, the risk appetite and time horizon matter the most.

By analyzing the fundamentals you will be able to find which stocks are deemed fit for long-term investment and which ones aren’t. By analyzing a stock’s fundamentals you can be able to find hidden diamonds in an attractive valuation and write off your losses.

Parameter #1. Debt to Equity Ratio

The debt to equity ratio is one of the key matrices that measure the degree of risk. The Debt to equity ratio reveals whether the company is running its daily operations from its earnings or by pumping the debts in the event of a business downturn.

How to Calculate the Debt to Equity Ratio

When a company has a high debt to equity ratio, it is considered a risky investment. But this scenario does not deem fit for all sectors. Take the example of the banking and financial sector. Since they engage themselves for lending and earn an interest income, it’s likely they have a higher debt to equity ratio.

When a company has a high debt level, it’s worth watching whether they are long-term debts or short-term debt to leverage an economic cycle. The chances are higher when a company has long term debts than short term debts, the company is liable to pay the debt for the long term.

This will impact the earnings per share when a company experiences a deep in earnings during an economic contraction. Additionally, the company may temporarily stop dividend payments during the economic contractions when the earnings are on a decline to repay the long term debt obligations.

When a company uses debt to accelerate the profit and thereby generates more earnings that could not be possible without pumping external capital, a company is worth investing in. It’s interesting to watch whether the company leverages the debts in a way that the profit exceeds the interest payable.

When a company generates more profit by pumping external capital the company is worth investing in. But there is a sign of caution if the interest paid on the external capital is weighing higher than the profit generated from external debt. As a result, the share price may decline.

Long story short, since Apple and Amazon have debt obligations, it is a good decision to pick a stock that has a marginal debt of 0.10.

Parameter #2. Earnings per Share

When a company has delivered a robust EPS, then share prices tend to move higher. But when a company’s stock prices tend to move higher that doesn’t necessarily mean that the EPS is higher. It may be the investors are hoping that the company is likely to increase its profitability in the future.

When the earnings aren’t coped up with the investors’ expectations, the stock prices tend to move downward. A real-life example is the dot-com bubble. Since the technology stocks failed to deliver the desired results, the stock prices stumbled and investors made a huge loss.

How to calculate Earnings per Share

So, it’s worth considering whether the company has delivered robust earnings or not. When a company makes a profit from its operations, the net income is likely to be used for two purposes. First, the company deploys the capital to expand its business by setting a new plant or buying machinery, or to improve the products or services, or research and development efforts to develop new products to reach a larger audience. The second one is to cheer the shareholders by declaring a dividend or declare a fund for share buybacks.

When a company invests the profit for business expansion, the earnings will boost in the long run thereby stock prices tend to elevate to higher levels. Keep a cautious eye on not only the EPS of any company but also its peer companies that are operating in the same sector.

Parameter #3. Dividend Payout

When a company has a marginal debt and earnings growth is 15% year on year then retail investors should invest in that company. With the marginal debt obligation, the company may declare a dividend to cheer the investors.

When a company doesn’t declare a dividend, don’t assume that it doesn’t have enough cash flow to declare dividends. Take an example of Hathaway that has not declared any dividend during the past 5 decades. But the company invests the profit into itself to grow the business that will lead stock prices to a higher level. Finally, when you look for a dividend stock that has a record of paying dividends, consistently invest in it instead of investing in growth stocks.

Parameter #4. Price to Earnings Ratio

The Price to Earnings Ratio indicates what the market is willing to pay now for a dollar. Earnings of the company are based on its past or future earnings. To determine if the stock is undervalued or overvalued, this is one of the key matrices used by the analysts and value investors. One may find when a company trades at a higher P/E level, the stock may be overvalued and a company with a lower P/E is considered undervalued.

How to calculate Price to Earnings Ratio

But higher P/E does not necessarily mean that any sector or company is overvalued. Maybe it’s an indication that the investors are willing to pay a higher value hoping the growth will carry forward in the future too. Take the example of the banking sector.

The economy is growing robustly. So, to check the inflation, the Federal Reserve increases the interest rates. And the banks will charge higher interest rates on their products and services namely mortgages, credit cards. In this way, the banks can boost their earnings. This will lift the P/E of the banking stocks to a higher level.

From the above example, a high P/E does not necessarily indicate that the stocks are overvalued. To gauge whether the stock is overvalued and undervalued compare the stock’s P/E with the sector’s P/E. Banking and technology sectors have higher P/E, since the investors are willing to pay higher for their future earnings potential.

Parameter #5. PEG Ratio

PEG Ratio allows investors to calculate a stock’s valuation by scanning today’s earnings and the expected earnings growth of the company in the future.

how to calculate PEG Ratio

When a stock’s PEG is greater than one, 1 indicates that the stock price is high when compared to the company’s anticipated earnings growth. A company with a PEG of less than 1 is worth investing in.

Parameter #6. Price to Book Ratio

Investors use the price-to-book value to gauge whether a stock is valued properly or not. When the price-to-book ratio of a company is 1, this signifies that the stock price is trading in line with the book value of the company. In other words, the stock price would be considered fairly valued, strictly from a P/B standpoint. A company with a high price-to-book ratio could mean the stock price is overvalued while a company with a lower price-to-book could be undervalued.

How to calculate Price to Book Ratio

how to calculate Book Value per Share

It’s important when you are calculating the P/B ratio of a company. Compare the P/B ratio with the companies that belong to the same sector. When you compare one company with its peer companies, it’s easier to gauge if the company is overvalued or undervalued. The peer company has similar assets and liabilities.

 A company has a higher P/B compared to its peer companies, it may be a clear signal that the company is earning a higher return on its assets in comparison to peer companies. Additionally, a high P/E ratio could indicate that a bunch of good news can lift the price of the stock, and any further good news may not lift the stock to the higher levels.

The low P/B ratio doesn’t necessarily mean the stock is overvalued. Maybe the investors believe that the assets a company has may witness a correction, which will lead to the possibility of delivering negative returns. A low P/B may be an indication of the company’s earnings are deteriorating on its assets.

Parameter #7. ROE and RoCE

The return on Equity allows investors to find the company’s profitability by running a business from the capital of the shareholders without pumping any external capital.

The return on equity can be calculated by dividing the net income of a company with its shareholder’s equity.

How to calculate ROE

When a company generates a profit by running a business, this will give a competitive moat over its peer companies. When a company consistently generates a profit and witnesses double-digit profitability growth, this signals that the management is quite efficient and successfully utilizes the shareholders’ capital to generate profit. That’s why when you find a company with a double-digit profitability growth you should invest in it. The stock is likely to deliver superior returns to the investors.

When the ROE of a company has witnessed a steady increase this signifies that the management is quite efficiently gifting more to the shareholders of their invested capital.

Return on Capital Employed

On the contrary Return on Capital Employed can help an investor to compare the performance of companies that have significant debt. When analyzing companies of Oil and Gas, or Telecommunication, or Financials Sector, that has significant debt, ROCE is one of the key matrices. ROCE helps an investor to measure the profitability by taking into account debt and other liabilities a company has.

How to calculate ROCE

By analyzing the ROCE you will find the company’s operating income. It will help you to calculate the operating income without subtracting interest and taxes payable. Find a company whose ROCE is stable and rising consistently, rather than a volatile or descending ROCE during the last 5 years.

5 Points to consider before investing in the stock market

After analyzing a stock on the above-mentioned parameters, you need to consider the following questions before investing in any stock.

Can you control your emotion?

Do you belong to those investors who simply buy or sell the stocks since there is a hype around it? Or your friends, colleagues, invest in any specific stocks, and hopefully, they have made a profit from their trades? Don’t make this mistake. You don’t know their risk appetite, time horizon, you should avoid the herd mentality, instead do independent research before investing in any stock.

Have you diversified your stock portfolio?

Many an investor looks for dividend stocks that have paid a regular dividend to their shareholders. Regular dividend payouts will help them to reinvest the dividend to buy more stocks. This will help their stock portfolio grow over the long term. On the contrary, there are a majority of investors that don’t look for companies that have a regular dividend payment. Instead, they invest in those stocks that have strong fundamentals, a sustainable competitive moat that will yield better returns in the long run. This type of investing is called Value Investing.

For example, Warren Buffet has applied this strategy to pick value stocks with strong fundaments. That’s why Warren Buffet invests in Berkshire Hathaway even when the company doesn’t have any dividend payout during the last 4 decades.

Irrespective of whether you are investing in dividend stocks or growth stocks, be sure you have diversified your stock portfolio. When you have 7 stocks in your portfolio, diversify your stock portfolio across 3 sectors to minimize the risk. Don’t buy all the 7 stocks that belong to any specific industry.

For example, if you are working in the Banking sector since you know about the sector, you will overload your stock portfolio with banking and financial stocks. No matter how the fundamental of any stock is intact. It is subject to market correction from time to time. The stocks that are jumping higher today will not carry out its bull run forever. When the stocks of banking and financial sectors are in the bear phase, your stock portfolio is likely to bleed.

It’s a good idea to diversify your stock portfolio across various sectors/industries namely, banking, automobiles, information technology, power, consumer durables, etc.

Do you understand the sector in which you are investing?

Even Warren Buffet doesn’t invest in all the sectors. He is one of the best value investors, but when it’s time to start investing he still invests in simple businesses the business model and how the company generates revenue, is as clear as a day to him. By applying the same strategy Warren Buffet managed to escape from a huge loss during the dot com bubble burst in the late 90s. Like Warren Buffet, pick simple businesses that you have proper know-how which will better return in the long run.

Is the management of the company up to the mark?

Management is the backbone of any company. It’s worth interesting who is in its key positions namely CEO, COO, CFO, etc. The management is responsible for a company’s corporate governance and innovative efforts that will enhance not only earnings and profitability but also its culture, brand value, and customer satisfaction. By analyzing both the factors you can pick quality stocks that will yield better returns.

Does the company have a sustainable competitive moat?

Ace investor Warren Buffet has made this term famous. A Competitive moat will reveal whether the company has an advantage over its peer companies in an industry. By evaluating the sales, earnings, free cash flow, etc. of any company to its peer companies in a financial year, you will find a clear picture of whether the company has a sustainable competitive advantage over its peer companies. When you analyze companies in the same industry, it will give a clear picture of how the company stands out from its competitors. On analyzing the above-mentioned factors you can easily find a stock that is worth investing in.

7 Best Stocks to Buy Right Now Under $20

To buy a single share of Amazon, you should have $3200 in your brokerage account. Since most of the companies of most S&P 500 trade at much higher levels and valuations look very expensive in comparison to its earnings. To discover quality value stocks that trade below $20 is a difficult call.

When you are hunting high and low for the best stocks to buy under $20, you must look a glance at those stocks that are not on the radar of Mr. Market. May be these stocks are trading around $20 a share, these stocks are able to deliver better returns in the long run when they have robust earnings after witnessing multiple economic constructions. One individual investor must exercise patience to get fruitful returns in the long run.

Pactiv Evergreen Inc. [PTVE]

Pactiv Evergreen was incorporated in 2006. The company operates in the Consumer Durables sector. The company is the largest manufacturer and distributor of food merchandising and beverage cartoons in North America. Let’s look at a glance what products the company offers,

Food Merchandising – Food containers, hot and cold cups, plates and bowls, egg cartons, wraps and cutlery, and reclosable beverages cartoon.

The company offers services to major foodservice retailers and distributors namely McDonald’s, Burger King, Walmart, Tim Horton’s, Wendy’s, etc.

Let’ take a glance at its fundamentals,

  • Market Capitalization – $3.17 Billion,
  • 52-Week High/Low – $19.61/$10.40.

Itamar Medical Ltd. [ITMR]

Itamar Medical was incorporated in 2000. The company operates in the Healthcare sector. The company is engaged in the research, development, and leasing of medical devices. WatchPAT and EndoPAT are the brands of Itamar Medical that will help to diagnose, sleep apnea, and endothelial malfunction. The company’s headquarter is located in Caesarea, Israel.

Let’ take a glance at its fundamentals,

  • Market Capitalization – $266 Million,
  • 52-Week High/Low – $29.00/$7.82.

Zynga Inc. [ZNGA]

Zynga was incorporated in 2007. The company operates in the Communication Services sector. The company is engaged in the development of games for Apple iOS, and Android devices. A user can get access to the games to the major social networking sites namely Facebook, and Snapchat too. Chess with Friends, FarmVille, Solitaire, Zynga Poker, are the most popular games played across the world and are delivered by Zynga. The company’s headquarter is located in San Francisco, California.

Let’ take a glance at its fundamentals,

  • Market Capitalization – $10.22 Billion,
  • 52-Week High/Low – $10.69/$5.65.

Jaws Acquisition Corp. [JWS]

This company was incorporated in 2019. The company operates in the Financial Services sector. This is a blank check company that offers services namely effecting a merger, own shares, asset investment, combination of similar business with one or more entities, etc. The company wants to acquire growth-oriented companies across various sectors or industries. The company’s headquarter is located in Miami Beach, Florida.

Let’ take a glance at its fundamentals,

  • Market Capitalization – $1.15 Billion,
  • 52-Week High/Low – $14.70/$9.95.

Algonquin Power & Utilities Corp. [AQN]

The company was incorporated in 1988. It operates in the utility sector. This company is engaged in the generation, distribution, and transmission of utility assets across the United States and Canada. The company invests in green and clean energy assets namely hydroelectric, thermal, solar power, and wind energy. Additionally, through its subsidiary, Liberty Utilities offers utility services of water, electricity, and natural gas. The company owns an equity interest in wastewater treatment too. The company’s headquarter is located in Oakville, Canada.

Let’ take a glance at its fundamentals,

  • Market Capitalization – $9.69 Billion,
  • 52-Week High/Low – $16.85/$9.53.

United Microelectronics Corporation [UMC]

The company was incorporated in 1980. It operates in the Technology sector. The company is engaged in researching and developing and manufacturing of Complementary Metal Oxide Semiconductor, high voltage integrated circuits that are used in the solar energy and LED industries. The company has a strong customer base in Taiwan, Singapore, Hong Kong, Japan, Korea, Europe, and the United States, etc. The company’s headquarter is located in Hsinchu, Taiwan.

Let’ take a glance at its fundamentals,

  • Market Capitalization – $20.70 Billion,
  • 52-Week High/Low – $9.40/$2.10.

Teranga Gold Corporation [TGCDF]

Teranga Gold Corporation was incorporated in 2020 and operates in Gold Industry. Terenga Gold Corporation is engaged in the exploration, production, and development of Gold. This company has a worldwide customer base. The company’s headquarter is located in Toronto, Canada.

Final Thoughts,

Before investing in the stock market do remember Rome isn’t built in a day. Quality stocks can make you a millionaire, in the long run, to say 15 years or 20 years. Many novice investors dream that a growth stock will multifold their investment in just a few trading sessions. Do remember, stock prices will rise on the basis of demand and supply in the stock market on the wings of robust earnings and strong fundamentals in the long run.

Have I missed any best stock to buy today under 20 dollars? Comment below so that I can add the best stocks to buy under 20 dollars.

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