The stock market finished 2022 with another fall, and volatility continues high as recession concerns increase. Smaller and more speculative enterprises have seen the most sales.
- Rackspace Technology Inc.
- Procaps Group SA
- WM Technology Inc.
- Terran Orbital Corp.
- Spire Global Inc.
- ContextLogic Inc.
- Ambev SA.
- AvePoint Inc.
- Diversey Holdings Ltd.
This is a chance for traders looking to purchase some lower-priced equities. As of this writing, there are roughly a thousand separate U.S.-listed firms with a market capitalization of at least $50 million that have share prices less than $5.
That’s a massive pool for fishing. When investing in a low-priced stock, investors should use extreme care. There is generally a valid explanation why shares have fallen to such low levels.
Rackspace Technology Inc. (ticker: RXT)
Enterprise infrastructure solutions company Rackspace is a publicly traded company again. Private equity firm Apollo took it private in 2016, but Rackspace reemerged with a 2020 initial public offering. Shares began trading around the $20 mark but now trade for less than $3.
Shares were already dropping alongside the tech industry’s broader problems, and then a high-profile ransomware attack against the company in December turned matters from bad to worse.
Structurally, Rackspace has a highly profitable legacy cloud hosting business, but this division is expected to erode over time as technology evolves.
Rackspace is attempting to pivot to higher value-added services such as multi-cloud operations. Rackspace shares now trade for less than 6 times projected 2022 earnings, marking a compelling entry point if management can overcome current headwinds.
Procaps Group SA (PROC)
Procaps is a Colombian pharmaceutical company. It produces vitamins, over-the-counter and prescription drugs, hospital supplies and so on, with operations in 13 countries across Latin America.
The company went public in 2021 via a special-purpose acquisition company, or SPAC. PROC stock initially held up well near the $10 mark. However, like most SPACs, the stock was hit by heavy selling pressure later in 2022 and shares quickly lost half their value. But despite its SPAC-related challenges, Procaps has a meaningful and profitable business. Shares are now going for just 10 times forward earnings.
With the company’s widely diversified product lines and operations around Latin America, it has exposure to growing populations and wealth in these regions. Being public gives it easy access to capital and, with that, the opportunity to become a leading platform for consumer health and wellness products around the region.
WM Technology Inc. (MAPS)
WM Technology, formerly known as Weedmaps, is an e-commerce, compliance and advertising provider for cannabis retailers. The company’s stock trades at around $1 now, making it a true penny stock.
Shares are down nearly 90% from their initial SPAC price. As to be expected with a stock down that much, the company has obvious problems.
It generates more than half of its revenues from California, where slow market adoption and large-scale black market operations have limited the company’s success. Outside of California, WM hasn’t signed up new customers as quickly as investors had expected.
However, historically it has earned reasonable profit margins, and the firm has a net cash position which ensures its survival for the time being. An app and online marketplace for cannabis is a reasonable business idea, and MAPS stock has now slumped enough to make it an intriguing turnaround opportunity.
Terran Orbital Corp. (LLAP)
Terran Orbital is a space company that went public via SPAC. Not surprisingly, its shares have plunged amid the sharp sell-offs in both SPACs and space stocks.
However, Terran has a lot more going for it than many SPACs. Terran has been operating for a decade and has already supported 80 missions and provided more than 200 satellite launch services to the Department of Defense and NASA.
The company has achieved an annualized revenue rate of more than $100 million along with 171% year-over-year revenue growth in its most recent quarter. This success has been possible thanks to the company’s CubeSat small satellite platform which can lower the cost of various space-related objectives.
Lockheed Martin Corp. (LMT) just invested $100 million in Terran, further validating the company’s technology and commercial prospects.
Spire Global Inc. (SPIR)
Spire is another low-priced space stock, with shares trading for around $1 in the early days of 2023. The company’s satellites can track the oceans, skies and weather. Spire collects this data and sells it to various end users in fields such as aviation, agriculture and defense.
Spire has already proven there is meaningful demand for these services, with full-year 2022 revenues expected to come in around $81 million. Analysts see that jumping to $120 million in 2023. The company keeps pushing ahead as well, with plans to launch an additional six satellites on the recent SpaceX Transporter-6 mission.
Profitability remains a challenge, but with a market capitalization of less than $150 million, the company is valued only slightly above expected 2023 revenues. That offers a compelling entry point if management can reduce the firm’s operating losses going forward.
ContextLogic Inc. (WISH)
ContextLogic is an e-commerce company. It rose to prominence in 2020 with its unique treasure-hunt style model. The company offers shoppers unique products at rock-bottom prices. This initially worked well, and revenues exploded. However, things turned in 2021 as the price of digital advertisements rebounded from the pandemic lows.
This made it cost-prohibitive for ContextLogic to reach new customers, given its low-priced merchandise. There were also numerous product quality issues. Revenues have now collapsed and the company is pivoting its business strategy. The stock is interesting as the company now has a market capitalization of just $360 million and the stock trades around 50 cents.
Meanwhile, the firm had $837 million of cash and marketable securities as of Sept. 30. This discrepancy creates a deep value opportunity if management either liquidates the business or finds a more profitable business model.
Ambev SA (ABEV)
Ambev is the Latin American operating division of global beer giant Anheuser-Busch Inbev SA (BUD). Ambev’s primary business involves manufacturing and distributing its parent’s brands in Brazil, Argentina and other South American countries.
That’s been a great business historically. However, Latin America was hard-hit during the pandemic with many bars and restaurants being slow to reopen. Additionally, weak economic activity in the region limited consumer spending power.
However, earnings results have improved in recent quarters. Argentina’s recent victory at the World Cup should likely power a meaningful uptick in beer sales at the next quarterly earnings report as well.
Meanwhile, the company retains a debt-free balance sheet, giving it flexibility to meet whatever challenges may lie ahead. Ambev has also traditionally offered investors a strong dividend, and one which should grow in coming years as its profits rise. ABEV’s dividend yield currently sits at 5.5%.
AvePoint Inc. (AVPT)
AvePoint is a software company which helps enterprises manage their installations and data in the Microsoft Corp. (MSFT) cloud ecosystem. A customer can manage Office, Teams and Azure from one platform. AvePoint offers additional software-as-a-service solutions of its own, on top of the core Microsoft functions.
Investors were initially skeptical of AvePoint’s value proposition, seeing it as just a partner vendor for Microsoft. However, as Azure continues to post tremendous growth rates, it has widened the market opportunity for AvePoint as well. Shares still trade for less than $5.
That could represent a serious bargain as the stock is going for just over 3 times revenues, and sales are growing at approximately 20% per year. Additionally, analysts see the company achieving profitability in 2023.
Diversey Holdings Ltd. (DSEY)
Diversey is a company focused on providing cleaning and infection prevention solutions around the globe. This industry is highly scattered, with most operations being performed by regional companies or mom-and-pop shops.
As a result, Diversey, despite having a market capitalization of just $1.5 billion, is the second-largest player in the industry, trailing only Ecolab Inc. (ECL). Ecolab shares have been a massive winner over the decades as the company has acquired numerous rivals within the industry.
Diversey, by contrast, only went public in 2021, and shares are now down sharply. Diversey hasn’t yet achieved the same levels of profitability as Ecolab, leading to investor concern. However, some of that is likely tied to lingering COVID-19 effects on Diversey’s restaurant and hospitality customers.
In any case, Diversey shares trade at just 0.5 times revenues, compared to 3 times sales for Ecolab, showing the tremendous upside potential if and when profitability improves.
