Wall Street dove back into stocks during the first half of October. The bulls stepped up and bought stocks right around the S&P 500’s key 200-day moving average, which could prove that the wave of selling in August and September was driven, in part, by profit taking after the massive rally through July.

Investors who want to stay exposed to the market, which is proven to be a winning long-term strategy, should take comfort in the fact that the earnings outlook for 2024 and 2025 is flat-out strong. On the interest rate front, Wall Street is currently placing roughly 60% odds on the Fed being done with its rate-hiking campaign.

Image Source: Zacks Investment Research

Today we dive into a pocket of the stock market that many investors like to own as part of diversified portfolios: cheap stocks trading for $10 a share or less.

Along with the cheap price tag, the stocks we explore today boast high Zacks Ranks given their improving earnings outlooks.

Penny Stocks

One dollar or less used to be the common threshold for what we call “penny stocks.” Today, the SEC has expanded penny stocks to securities that trade for less than $5 a share. Many investors avoid these stocks because they are speculative in nature.

Meanwhile, penny stocks often trade infrequently and hold wide bid/ask spreads. These stocks also carry many other traits that, in many cases, cause excessive volatility. With that said, some penny stocks perform incredibly well, which helps them remain attractive.

Stocks Under $10

Moving on, let’s briefly discuss the next class of cheap stocks. Stocks that trade in the $5 to $10 range are generally less risky than their penny stock counterparts. Investors might be more likely to have heard of these companies or seen the tickers. They are, however, still inherently more speculative than many other higher-priced stocks.

Investors can obviously find winning stocks for under $10 if they are extremely selective. So today, we narrowed the list of thousands of these more speculative stocks down to a more manageable group of $10 and under stocks that might help boost your portfolio.

Screen Parameters

• Price less than or equal to $10

• Volume greater than or equal to 1,000,000

• Zacks Rank less than or equal to 2

(No Holds, Sells or Strong Sells.)

• Average Broker Rating less than or equal to 3.5

(Average Broker Rating of a Hold or Better.)

• # of Analysts in Rating greater than or equal to 2

(Minimum of at least two analysts covering the stock.)

• % Change F1 Earnings Estimate Revisions -- 12 Weeks greater than or equal to 0

(Preferably upward earnings estimate revisions, but definitely no downward revisions.)

Here are two stocks out of the roughly 50 highly-ranked names trading under $10 a share that made it through the screen today…

Nu Holdings Ltd. (NU - Free Report)

Nu Holdings Ltd. is a digital financial services powerhouse, with a platform that currently reaches over 80 million customers across Brazil, Mexico, and Colombia. The fintech company is in the midst of shaking up the banking and financial services sector in large economies with huge populations. Nu burst into the fintech space in these countries by attempting to cut out some of the burdensome red tape at more traditional banks.

Economies all around the world are embracing the power of digital banking and Nu operates in potentially key growth markets. Nu added 18.4 million or 28% more customers YoY last quarter. The firm boasts that it is the fifth-largest financial institution in Latin America by the number of total customers and the fourth-largest financial institution in Brazil.

Image Source: Zacks Investment Research

Zacks estimates call for Nu, which lands a Zacks Rank #2 (Buy), to post 62% revenue growth in FY23 to climb from $4.79 billion all the way to $7.76 billion. The firm is then projected to post 29% sales expansion next year. Meanwhile, NU’s adjusted earnings are projected to skyrocket 425% this year from $0.04 to $0.21 and then soar another 80% to $0.38 per share next year. Nu’s earnings outlook keeps getting better and better, and it has crushed our estimates in the last three quarters.

The company went public in late 2021, right as the Nasdaq and tech stocks began to tumble from their peaks. NU stock still trades 33% below its highs even though it has soared 95% YTD. NU shares are back above their 50-day moving average, and it trades at a discount to its Zacks sector at 22.9X forward 12-month earnings.

Payoneer Global (PAYO - Free Report)

Payoneer is another tech-focused financial services disruptor. The fintech firm is focused on small and medium-sized businesses. Payoneer’s global financial platform is spread across more than 190 countries and territories, while trying to do a ton of business in emerging markets. Payoneer wants to help its customers “to pay and get paid, manage their funds, and grow their business.” Payoneer crushed our adjusted Q2 earnings estimate on the back of 40% YoY sales expansion.

Zacks estimates call for Payoneer to post 32% revenue growth in FY23 (on top of 33% revenue growth last year) to soar from an adjusted loss of -$0.03 a share to +$0.22 per share. Payoneer is projected to post double-digit earnings and revenue growth next year as well. The company’s upbeat earnings outlook helps it land a Zacks Rank #2 (Buy) right now.

Image Source: Zacks Investment Research

Payoneer stock has climbed 15% in the last three months, with it right on the cusp of its 50-day moving average again. At around $6.00 a share, PAYO trades 43% below its average Zacks price target. Plus, seven of the nine brokerage recommendations Zacks has are “Strong Buys,” alongside two more “Buys.” In terms of valuation, PAYO is trading almost directly in line with the Zacks Tech sector at 24.2X forward 12-month earnings.

Both stocks offer solid growth potential. Yet, it isn’t wise to pack your portfolio full of cheap, $10 or less stocks. Still, these stocks are certainly worth further investigation because grabbing a few of the top names from this list might bolster your returns. And let’s not forget that picking a few cheap stocks can also be quite fun.

Get the rest of the stocks on this list and start screening for the best stocks under $10 for yourself. And don't forget to backtest your strategy so you'll know how successful it's been before you put any of your money at risk.

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