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10 Cheap Stocks Under $10 to Buy for 2016

By Jeff Reeves, Executive Editor of InvestorPlace.com

The best cheap stocks to buy now can be difficult to identify. That big-name stock that has fallen from grace could be a bargain, but it also could be stuck in a big downtrend. Similarly, that small up-and-comer that has shown strength lately may just be faking out Wall Street and set for just as big of a move back to the downside.

So how can investors have confidence that the cheap stocks they are looking at have staying power?

There is no magic formula and no guarantees, but a few crucial things to look for in the best cheap stocks to buy include:

  • Profitable operations, showing a company with staying power
  • A sustainable dividend, to guarantee some kind of return on your investment
  • A unique opportunity for upside, such as acquisition potential
  • A reasonable explanation for past troubles, and a significant change from the old model to a new one

Using those criteria — as well as a demand that all stocks trade at least 500,000 shares daily on average and boast a market cap of more than $300 million — investors can have confidence that they aren’t just putting a coin in a slot machine and crossing their fingers.

PLUS: 5 Tech Stocks That Should Clock the Market

Here are 10 such investments that meet the measure of what I think make up a list of the best cheap stocks to buy now.

Regions Financial Corp (

)

Industry: Regional Banks
Market Cap: $12 billion

Regions Financial (RF) is one of the best cheap stocks to buy now because it boasts a lot of characteristics of any strong investment. It has substantial size, as a mid-cap bank with a $5.5 billion or so in annual revenue and consistent profitability.

RF stock also boasts a modest dividend yield of 2.6%, with its 6-cent quarterly payments very sustainable at less than a third of earnings. The fact that the dividend was bumped a penny higher earlier this year is also a good sign.

The challenge is that Regions isn’t really growing — at least not on its top line. Revenue is projected to increase about 5% this year and just 3% in fiscal 2016. Thus, investors aren’t interested.

But here’s the thing: RF execs are painfully aware of perceptions and have been taking measures to improve profitability even if growth is hard to come by, including a recent hiring freeze and the elimination of 40 full-service bank locations over the past year.

Regions also has taken consistent steps to reduce risk, with just a 10.4% leverage ratio and an 11.7% Tier 1 Capital ratio. That makes Regions much less risky than in previous years, even compared with some of the bigger banks out there. Consider that Bank of America (

) and Citigroup () both have ratios under 10% for their Tier 1 Capital — that is, the most liquid and secure assets that can be used to quickly backstop problem loans.

To top it off, regional banks remain ripe for consolidation, and Regions is at the top of the list. There may not be a lot of growth, but that’s true sector-wide — and all the more reason for big banks looking to expand via acquisition to roll up this player.

With a price-to-book of just 0.76 right now — meaning a roughly 24% discount — RF is worth a look.

Yamana Gold Inc. (USA) (

)

Market Cap: $2.3 billion
Industry: Metals & Mining

Yamana Gold (AUY), like many miners, has been eviscerated by the commodity downturn. However, the dramatic fall from grace of this gold miner has been much harsher than the actual declines in gold bullion prices, which could hint that AUY stock is oversold and one of the best cheap stocks to buy now.

The company is hovering on the edge of profitability, with hopes that cutbacks will boost margins in 2016 a bit. The company pays a modest 2.6% dividend to boot, and at just 1.5 cents quarterly it should be able to sustain that payout even on slim EPS.

Gold prices may flat-line, but given the negativity baked into Yamana Gold, it’s unlikely this cheap stock will slide much more in 2016. I know that’s a dangerous sentiment to voice around gold, but remember that miners have fallen much more sharply than gold itself — the benchmark SPDR Gold Shares (

) that is tied to gold futures is off 33% in three years, while the Market Vectors Gold Miners ETF () is off 68% and the Market Vectors Junior Gold Miners ETF () is off 76%.

Clearly much of the pain is baked in, and a breakeven stock with a dividend like Yamana is worth an aggressive buy here. Look at the 50% surge in AUY stock over the past month as proof that some investors think the worst is over, and that sentiment is shifting.

Sirius XM Holdings Inc. (

)

Market Cap: $20.7 billion
Industry: Media

Satellite radio provider Sirius XM (SIRI) always seems to make these lists of the best cheap stocks to buy, since it has been trading in the single-digits for many years.

But rest assured it’s not on this list just as filler.

This summer, SIRI put up strong earnings that show it’s a pretty good bet regardless of what the nominal share price is — including a record level of subscribers. The company followed that up with a>


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