Ballin' on a Budget: The Best ASX Stocks to Buy for Under $5

Ballin’ on a Budget: The Best ASX Stocks to Buy for Under $5

Let’s say you have $1,000 to invest in ASX stocks. If you would buy S&P/ASX 200 Index (ASX:XJO) Biotech giant CSL Limited (ASX:CSL), your $1,000 would buy you the grand total of exactly three shares along with around $120 in change.

That’s because CSL shares are currently trading at just under $300 a share — the highest single-share price of any company on the ASX.

Unless the thought of being the proud owner of just three stocks doesn’t shake your world, you might prefer to invest in some “cheaper” options. Obviously, a lower stock price doesn’t necessarily mean “cheap,” since a company’s overall valuation is based on its market cap. But companies that trade at the lower end of the single-stock price spectrum can certainly be more accessible (and indeed attractive) to many investors.

In addition, many high quality companies are traded on the ASX with share prices under a five. With that in mind, we’ve asked our Foolish contributors to put on your frugal thinking caps and let us know which ASX stocks you think are the best buys below $5 right now.

The team came up with the following:

8 Best ASX Stocks Under Five Dollars (Smallest to Largest)

  • Volpara Health Technologies Ltd (ASX:VHT), $166.36 million
  • Adairs Ltd (ASX:ADH), $385.46 million
  • Index Limited (ASX:IMD), $875.67 million
  • Core Lithium Ltd (ASX:CXO), $2.57 trillion
  • HomeCo Daily Needs REIT (ASX:HDN), $2.64 trillion
  • Harvey Norman Holdings Limited (ASX:HVN), $5.12 trillion
  • south32 ltd (ASX: S32), $17.94 trillion
  • Telstra Group Ltd (ASX:TLS), $45.52 trillion

(Market Caps as of November 18, 2022)

Why Our Foolish Writers Love These ASX$5 Finds

Volpara Health Technologies Ltd

What it does: Volpara “makes software to save families from cancer.” Healthcare providers use Volpara’s product to better understand a patient’s cancer risk and make recommendations for additional imaging, genetic testing, and other interventions. The software can help radiologists complete their tasks faster and more effectively.

From Tristan Harrison: Volpara continues to grow at an impressive rate. In the first quarter of FY23 cash income increased by 23% to NZ$8.8 million. The healthcare company’s Annual Recurring Revenue (ARR) also continues to climb and is now over $19 million.

The customer retention rate remains high and Volpara hopes to increase its average revenue per user (ARPU) by selling more software modules to customers.

The gross profit margin is currently around 90% (which is high), so any additional sales will have a very positive impact on the bottom line. Volpara has the opportunity to reinvest the additional gross profit into driving more growth by investing in further product development and marketing. The company is now focused on profitable growth.

Motley Fool contributor Tristan Harrison does not own any shares in Volpara Health Technologies Ltd.

Adairs Ltd

What it does: Adairs is a home furniture and decor retailer. It has an established network of more than 170 stores in Australia and New Zealand and an established and growing online channel.

Through Matthew Farley: After plummeting around 44% year-to-date, I believe Adairs shares are now selling at an attractive discount. And at $2.25 at Friday’s close, Adairs’ stock price is also well below its 52-week median price of $2.88 for its 52-week range, making it even more attractive to me right now .

One thing I like about the company is the growth in sales over the past few years. Adairs group revenue increased to $564.5 million in fiscal 2022 from $388.9 million in fiscal 2020. The company expects revenue to continue growing this fiscal year to between $625 million and $665 million.

Due to last year’s market sell-off, Motley Fool’s chief investment officer, Scott Phillips, recently highlighted the fact that some ASX retail stocks are now trading at cheap valuation ratios. With a current price-to-earnings (P/E) ratio of just 8.7, Adairs is arguably one of them.

Contributor to Motley Fool Matthew Farley does not own shares in Adairs Ltd.

Index Limited

What it does: Founded 42 years ago, Imdex has grown into a truly global technology company with sales in more than 100 countries. The company provides software solutions for the mining industry to optimize drilling and provide ore insights and actionable analysis.

From Mitchell Lawler: Imdex shares were trading at $2.20 a share at the close on Friday, giving a market cap of around $875 million. The profitable tech company is a minnow compared to the broader Australian stock market.

However, I believe Imdex’ financial history should speak volumes. Since late 2015, the company has gone from a barely profitable business with $145 million in revenue to a profit printer with $341.8 million in FY22 revenue.

Despite its historical success, Imdex is still tinkering with new technologies. Lately, Fortescue Metals Group Limited (ASX:FMG) has formed a joint venture to implement the first commercial use of Imdex’s Blast Dog technology.

Motley Fool contributor Mitchell Lawler does not own any stock of Imdex Limited or Fortescue Metals Group Limited.

Core Lithium Ltd

What it does: Core Lithium is the Australian lithium developer behind the Finniss project in the Northern Territory. Management claims it is the most capital efficient lithium project with arguably the best logistics chain to markets of any Australian lithium project.

By James Mickleboro: Core Lithium shares closed at $1.40 a share on Friday, well below the 52-week high of $1.88 set just a few days ago. This weakness stems from concerns that the Finniss project could be behind schedule and fears that Chinese lithium demand is slowing.

However, the online lithium auction results come from the rival Pilbara Minerals Ltd (ASX:PLS) this week appear to show that demand is as strong as ever. Given that and the expectation that lithium prices will remain high for some time, I think this is a buying opportunity for investors. Especially given that Core Lithium shares are trading at a relatively modest 8x earnings in fiscal 2024 based on Macquarie’s forecasts.

Motley Fool employee James Mickleboro does not own any shares in Core Lithium Ltd or Pilbara Minerals Ltd.

HomeCo Daily Needs REIT

What it does: HomeCo Daily Needs REIT is an Australian real estate investment trust (REIT) focused on convenience assets. It has 53 properties, $4.6 billion in assets under management and an occupancy rate of 99%.

From Brooke Cooper: The HomeCo Daily Needs REIT has had a good run of late. Funds from operations grew 30% year over year in fiscal 2022, while net tangible assets rose 12%.

The Trust has also announced more than $75 million in new development projects to begin this fiscal year.

Despite this tailwind, the ASX 200-listed REIT’s share price is down 20% year-to-date and is now trading at $1.27. If Goldman Sachs is to be believed, such a drop could have presented a buying opportunity. The broker has a Buy rating and a price target of $1.57 on the stock.

Motley Fool contributor Brooke Cooper doesn’t own any shares in HomeCo Daily Needs REIT.

Harvey Norman Holdings Limited

What it does: Harvey Norman Holdings Limited is the franchisor of Harvey Norman, a leading Australian retailer selling home furniture and housewares.

Through Bronwyn Allen: Personally, I like to invest in the permanent cultural tailwind of Australia’s property craze. We love to update our homes when our finances allow. We are very proud of our home and increasingly have a taste for luxurious furniture, interior design and the latest electronics.

We love watching The block and spend millions annually on home renovations. These are long-term trends. Also, a strong short-term trend is that thousands of us are moving from expensive capital cities to cheaper regional areas since COVID ushered in the permanent work-from-home era.

And when people change homes, they buy new things. I think all of this bodes well for legendary furniture and home goods retailer Harvey Norman.

For the hard numbers analysis, let’s look at broker Goldman Sachs. It’s positive for the company with a price target of $4.80 and very healthy projected dividend yields of 9% in FY23 and just under 8% in FY24.

Motley Fool contributor Bronwyn Allen owns shares in Harvey Norman Holdings Limited.

south32 ltd

What it does: South32 is an ASX 200 listed mining company focused on the discovery and mining of aluminum, manganese, silver, lead, zinc and metallurgical coal on three continents. It has a market cap of just under $20 billion.

Through Bernd Struben: With its focus on metals critical to a low-carbon future, I believe the prospects for South32 are bright. And I think the price of mead coal (used to make steel) is undervalued today compared to the skyrocketing prices of thermal coal (used to make electricity).

Katana Asset Management’s Romano Sala Tenna says the miner has “tier one assets in tier two commodities.”

South32 stocks are at risk of “a few downgrades in the coming months” as commodity prices fall, he said. “However, they were one of the best companies in terms of capital management.”

Down 2.5% year-to-date, South32’s stock price has still outperformed the benchmark in 2022.

Motley Fool contributor Bernd Struben does not own any shares in South 32 Ltd.

Telstra Group Ltd

What it does: Telstra is the leading provider of telecommunications, mobile and internet services in Australia

Through Sebastian Bowen: Although Telstra is a relatively large ASX 200 company, it charges well under $5 per share. In the past few years, Telekom has put the pedal to the metal with its restructuring and cost-cutting programs. Following the success of its T22 plan, Telstra is now pursuing its T25 strategy and has just completed its corporate restructuring.

I believe this has the potential to rewrite the assessment Telstra commands. We’ve already seen Telstra get some generous valuations on some of its underlying assets, such as its cell towers. I think there’s a lot of potential for the market to give some of the telecom company’s other assets a premium rating as well.

So I think this is a great company to hold onto going forward, with a nice dividend to keep you company too.

Motley Fool contributor Sebastian Bowen owns shares in Telstra Group Ltd.

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