With the market pulling back, it’s time to go bargain-hunting and find some cheap stocks. It’s a good reminder that markets will go up and down, but stocks tend to outperform over the long run.
Let’s look at three cheap stocks investors can start to dip their toes in and buy now with a small investment. I own all three.
Alibaba
While Alibaba (BABA -1.35%) hasn’t been suffering in this market sell-off, the Chinese e-commerce and cloud computing giant is still one of the cheapest stocks around. The stock trades at a forward price-to-earnings (P/E) ratio of less than 15 times 2025 analyst estimates, while it also has a boatload of cash and investments on its balance sheet as well.
Meanwhile, the advances it has been making with artificial intelligence (AI) models have caught the attention of investors. The company has extolled the performance of its foundational AI model, Qwen 2.5-Max, which it uses as the basis for a number of specialized open-source AI models centered around language, audio, vision, coding, and mathematics.
Last quarter, the company’s cloud intelligence group grew its revenue by 13% to $4.3 billion, and its AI-related revenue surged by a triple-digit percentage for the sixth straight quarter. Meanwhile, the company has been letting low-margin project-based contracts roll off, which helped lift the cloud intelligence group’s adjusted EBITA (earnings before interest, taxes, and amortization) by 33% to $430 million.
At the same time, the company has started to see a meaningful turnaround in its e-commerce businesses, Tmall and Taobao. Taobao permits both businesses and consumers to sell on its platform, while Tmall is solely a business-to-consumer marketplace for established brands. Investments the company has made to grow its gross merchandise value (the total value of goods sold on its platforms) along with increasing use of its new AI marketing tool, Quanzhantui, and a new software service fee it implemented helped improve its results last quarter. Overall, the segment’s revenue rose 5%, while revenues from its third-party business climbed by 9%.
Overall, Alibaba is a cheap stock that is gaining momentum.
Image source: Getty Images
e.l.f. Beauty
The past year has been a difficult one for e.l.f. Beauty (ELF -1.88%) — its shares have been cut by close to two-thirds as of this writing. However, this has left the stock in bargain territory, trading at a forward P/E of 23 times and a price/earnings-to-growth (PEG) ratio of 0.5. Typically, stocks with positive PEG ratios under 1 are viewed as undervalued.
E.l.f. saw its shares tumble last month after it lowered its quarterly revenue growth forecast to only 1% to 2%, citing poor industry trends and the potentially disruptive impacts of a TikTok ban. The company markets heavily through influencers, so TikTok almost being banned in the U.S. in January had an impact. However, this is still a company that in the past few years has grown swiftly in the mass-merchant cosmetics space and taken a ton of market share away from competitors.
At the same time, it has large opportunities in front of it. E.l.f has moved into the skincare market, which is growing nicely, but it can still expand into adjacent categories such as fragrance. It has also been making nice strides internationally.
It’s also worth noting that the cosmetic industry tends to do pretty well during recessions, as reflected in a phenomenon known as the lipstick index. While not 100% accurate all of the time, it is an observation that female consumers tend to be willing to spend more on small luxuries, such as cosmetics, when budgets are tight. The company is also expected to see shelf space gains at retailers later this year, including at important retail partner Target.
All in all, this is a great time to scoop up shares of a leading company while they’re down.
Crocs
Down about 20% over the past year, shares of Crocs (CROX 3.62%) are on the clearance rack, trading at a forward P/E of under 8. While the company’s namesake brand has performed well, thanks in part to international growth, it has run into trouble with the HeyDudes brand that it acquired in early 2022.
Turning around HeyDudes could be a big opportunity for the company, and it saw some progress on that front in the fourth quarter, when it reported flat sales for the brand year over year. The company is leaning into marketing and celebrity endorsers to push the brand. It is also targeting the young female demographic, a strategy that led to 160% growth in new female customers ages 18 to 24 during the quarter.
While new HeyDudes products are selling well, the company still needs to continue to clear out older HeyDude inventory in its wholesale channel and return to full-price selling, but it finally made some good progress in that last quarter after some pretty big sales declines in prior periods. The Crocs brand, meanwhile, is expected to continue to be driven by international expansion, innovation, and its sandal business.
Crocs continues to produce a ton of cash, including $923.2 million in free cash flow in 2024, so it has a lot of financial flexibility to pay down debt, buy back its undervalued shares, and invest in growth initiatives. It’s a cheap stock to buy in this market.
