Here’s a bit of “investing trivia” that will grab your attention: If you look at the 50 biggest winners of the last decade, 39 of them started out as small- to mid-cap stock plays.
And quite a few of them were also low-priced (as in cheap) stocks – stocks trading at $10 a share, $5 a share… or even less.
One of my all-time favorite examples of a cheap-stock winner is a company called LendingTree Inc. (NasdaqGS:TREE) – the fintech leader that’s pretty much a household name these days. We’re talking about a company that recently sported a $3 billion market value and a stock price up around $220 a share.
Impressive stuff, right?
But there was also a time when LendingTree had a minuscule market value of $60 million – and a stock that was languishing down around $5.50 a share.
From that point to today, we’re talking about a total return of about 3,800%.
That’s a gain anyone – and I mean anyone – would be thrilled to pull down.
String a few of those 20X and 30X windfalls together … and that’s how you get rich.
The issue, of course, is that this cheap-stock-climb-to-the-peak-of-Mt.-Everest takes time to play out. And stocks, like mountain climbers, periodically stop to “rest” – meaning you’re not making any progress.
What if there was a way to get “paid” for owning that low-priced stock – so that you’re getting a steady, predictable stream of cash at every point along the journey?
That scenario not only sounds great – it’s actually doable.
Indeed, that’s the “ultimate cheap stock” – one with a super-low price, a hefty long-term upside… and an income stream attached.
That’s exactly what we have for you here today: A stock with 10-bagger potential – courtesy of the sizzling housing market – and one that will pay you to own it.
And it trades for less than 10 bucks a share…
Flowing Cash Into Your Pocket
Far too many investors equate “cheap” with “trash.”
Don’t make that mistake.
The “right” cheap stock isn’t trash; indeed, as I’ve shown, it can be stock-market gold.
A stock’s risk has nothing to do with its price.
The risk is related to the strength or weakness of the underlying business – to its revenue, profits, cash flow, financial reserves, and debt.
And, most important of all, its long-term prospects.
And those risks are reflected by the company’s share-price valuation.
Many lower-priced stocks have fantastic businesses that generate terrific cash flows.
And that spigot of extra cash presents those companies with lots of options.
We’re talking about money that can be reinvested in the business – stepping up marketing for existing products, researching new ones, or making acquisitions to boost market share.
Or it can be used as a de facto stock-price booster – via stock buybacks that boost the all-important earnings-per-share (EPS) metric.
Or it can flow directly to shareholders – as dividend payouts.
A sustainable dividend on a stock trading at $10 or less is the “ultimate cheap stock” – one you’re getting paid to own.
These are companies whose execs are essentially telling investors: “We’re generating more than enough cash to pay the bills and grow the business. We have money left over, and we’re using it to reward the most-important people in our world – our shareholders.”
As investors, we’re careful with our choices. We want dividend-paying cheap stocks. But we limit ourselves to “sustainable” dividends – payouts we know the company can cover out of cash flow, without leaving itself cash-strapped.
But we also want growth. I mean, we’re thrilled to get paid while we wait, and we are patient as investors, but in the long run we want the stock to go up.
So we zero in on cheap-stock companies that are positioned to benefit from powerful, long-term trends.
And thanks to the dividends – we get paid while we wait to cash in.
Today’s “Get-Paid-While-You-Wait-Stock” checks all the boxes.
The company is UWM Holdings Corp. (NYSE:UWMC), a wholesale-mortgage firm that’s an excellent example of a low-priced stock with a great dividend and a bright future. Because of its business model – providing funding for mortgage brokers – it doesn’t to consumers. It underwrites and provides closing documentation and then funds residential mortgage loans originated by independent mortgage brokers, correspondents, small banks, and local credit unions.
Back in January, UWM Holdings just went public via a merger with a special purpose acquisition company (SPAC) – a “New Age IPO” vehicle that we’ve talked about here before. To be clear, even though UWM is newly public, that doesn’t mean it’s a newcomer company. UWM Holdings is the parent of United Wholesale Mortgage, which has been around since 1986. And for the past six years, that company has been the largest wholesale mortgage lender in the U.S. market.
UWM is as much a tech story as it is a mortgage story. The company develops most of the technology it uses to underwrite and process loans easier and more efficiently. And UWM’s platforms make it possible for its commercial customers to build, brand, and service their own mortgage offerings.
All of this positions UWM atop one of the single-most-powerful trends we see right now – the housing boom.
This boom has been fantastic – and most analysts don’t see it ending anytime soon.
That’s good for UWM Holdings.
In fact, it’s downright great.
UWM controlled 34% of the wholesale mortgage market last year. Current forecasts call for that market share figure to hit 50% by 2026, when the wholesale channel is projected to be worth $685 billion – which is nearly 90% higher than it is today.
Wall Street’s consensus forecast is for EPS to grow almost 80% a year for each of the next five years.
In short, that’s the kind of growth that could send this stock into the stratosphere.
If those earnings forecasts proved out, and the shares moved in lockstep, you’d be talking about a stock price of $185 a share five years from now – a 1,790% return. But even if the stock did just one-third of that – hitting $60 – you’d be looking at a 512% gain.
And no matter what price UWM hits – or how long it takes to get there – you can rest easy in knowing that you’ll be well-aid to wait.
Right now, shares of UWM Holdings pay a quarterly dividend of 10 cents each – or 40 cents a year.
At a recent share price of $9.80, that’s a dividend yield of nearly 4.1%. The 10-year U.S. Treasury yield is currently 1.5%, so you’re earning 2.7 times the market rate while you wait for UWM shares to make the big move we’re expecting.
Having a company pay you – and pay you well – while you’re waiting to make a fortune on its stock is about the best deal you can get.
Anywhere.
And when that pay-while-you-own-it stock can be bought for less than 10 bucks a share – well, that really is the “ultimate cheap stock.”
And count on this: It’s not the last one of these we’ll be bringing your way.
I’m already researching several more.
And I’ll bring them to you here very soon.
Cheers,
— Shah Gilani
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Source: Total Wealth