2 Stocks Under $5 to Buy in August

Key Points

• Nextdoor trades for under $2 per share and is a cash-rich company with lots of potential.

• FuboTV’s partnership with Disney could give it long-term upside potential.

• Both are rather speculative stocks at this point, so don’t invest money you can’t afford to lose.

• 10 stocks we like better than Nextdoor ›

Let's clarify one important point first. Most stocks that trade for under $5 per share should be avoided. Period.

For one thing, most solid businesses don't start out trading for such a low share price. Therefore, stocks trading for $5 or less are typically there for a reason. Some are losing money with no end in sight, and others have serious problems with things like cash flow, competitive advantages, and more.

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Having said that, there are a few exceptions. If I were to put money into two sub-$5 stocks in August, here's what they would be. In fact, I already own one of them in my own portfolio.

Image source: Getty Images.

An overlooked social media stock

Nextdoor (NYSE: NXDR) is an overlooked social media stock that looks incredibly cheap. There are reasons it's cheap -- specifically because the company has yet to achieve profitability, and its growth has been sluggish. In the most recent quarter, Nextdoor's user base grew by 1% year over year and revenue climbed by just 3%, and the company posted a loss, even on an adjusted EBITDA basis.

However, management is making big moves. Founder Nirav Tolia rejoined the company as CEO last year and has been leading the charge to a leaner operation and a more engaging platform. On the former, Nextdoor recently announced a restructuring plan that is expected to trim operating expenses by $30 million annually. This alone would be enough to achieve adjusted EBITDA profitability, and that's exactly what management expects for the full year 2026.

Furthermore, the platform itself has received a major overhaul (just released in July), designed to boost engagement, and therefore lead to better monetization.

To be sure, it could be a while until a clear path to sustainable profit growth emerges. But Nextdoor is a cash-rich business, with $413 million in cash and short-term investments and no debt whatsoever. With a $714 million market cap, this means that the market is valuing Nextdoor's business at about $300 million. The risk-reward dynamics make a lot of sense here.

A valuable partnership that could produce long-term growth

A year ago, I never would have written favorably about FuboTV (NYSE: FUBO) as an investment, but that all changed in January when the company agreed to merge with Hulu, which is a fully owned subsidiary of Disney (NYSE: DIS).

There's a lot to like from an investor's perspective. Hulu will more than triple FuboTV's subscriber base once the deal is finalized, and there are some major advantages that should come with it, including the ability to provide a much larger assortment of content (remember, FuboTV has historically been focused on sports programming).

Financially, FuboTV will receive a $220 million cash infusion, which should bolster its balance sheet. Currently, the company has $284 million in cash and about $340 million in long-term debt, so this would result in a net cash position. Even if the deal falls through, FuboTV gets a $130 million termination fee. Sure, Disney will own 70% of FuboTV stock after the deal, but 30% of a rock-solid streaming service can still be a valuable business and could potentially be worth much more than the current $1.2 billion market cap if the partnership results in profitability.

Recent results from FuboTV have been encouraging. Its latest numbers show revenue and subscriber numbers that are handily better than the company's guidance, and the net loss has been cut in half year-over-year.

Both are rather speculative

In the interest of full transparency, I own Nextdoor in my portfolio (but a relatively small position) and it is my higher-conviction stock of the two. The company's cash stockpile gives it plenty of runway to figure it out, and its founder-CEO is making some interesting moves.

However, both are rather speculative investments at this point. There's no guarantee that Nextdoor's efforts to revamp its platform will produce sustained revenue growth, and there's no guarantee that FuboTV's partnership with Disney will do the same. Both have lots of upside potential if things go well, but it's wise to limit your position size and only invest with money you could afford to lose if things don't go well.

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Matt Frankel has positions in Nextdoor and Walt Disney. The Motley Fool has positions in and recommends Walt Disney and fuboTV. The Motley Fool has a disclosure policy.