5 Stocks Under $10 That Are Going Down

If there's $10 burning a hole in your pocket, I may have a better idea than blowing it on a pair of value meals.

I've been singling out attractive opportunities in low-priced stocks since my original "5 Stocks Under $10" column nine years ago, and I've seen plenty of stocks with pocket change prices generate incredible gains.

There are risks, of course. There are often good reasons for stocks to be ignored or beaten down. However, a market rally can work wonders for the unloved with positive catalysts in their pockets.

Let's go over my five picks from March of last year to prove my point.

* Bare Escentuals was acquired for $18.20 a share earlier this year.

The average gain of 402% in just 20 months is remarkable. Sirius XM Radio (Nasdaq: SIRI) had braced investors for the possibility of a bankruptcy filing a month earlier. Now it's a thriving and profitable media giant. Ford (NYSE: F) may have been the better positioned stateside automaker, but no one was buying cars at the time. A lot has changed since then, and now even GM is ready to go public.

I'm going to go in a different direction this month. Instead of picking out five low-priced stocks that are heading higher, I'm going to go over five stocks that I think are going lower.

Let's go over this month's picks.

American Software (Nasdaq: AMSWA) -- $6.71
Enterprise software is a niche that should be rolling back into fancy, and several market darlings with cloud computing bents had no problem growing through the recession.

American Software isn't as fortunate. It is likely to post a flattish top-line result for its fiscal year ending in April. More importantly for my bearish purposes, American Software has actually missed Wall Street's profit targets in each of the past four quarters.

American Software shares do sport an impressive 5.4% yield, so that's bringing income investors out of the woodwork. Unfortunately, the company is paying out more in dividends than it's actually earning. I don't know how sustainable the payouts may be, but it's just one more reason to steer clear of American Software.

Smart Balance (Nasdaq: SMBL) -- $3.84
I singled out Smart Balance as Motley Fool Rule Breakers newsletter recommendation last year, when the company behind the popular heart-healthy buttery spreads was ramping up its product line.

I was particularly hopeful that a national rollout of enhanced milk earlier this year would really move the needle. Smart Balance has struggled to make a dent outside of the spreads market. Your local market may not even carry Smart Balance-branded peanut butter, popcorn, or mayo.

Milk should have been different. It's right there on the dairy aisle. It's also a weekly purchase, unlike the buttery spreads that may be replaced every few weeks. Unfortunately, the Smart Balance brand hasn't been milked the right way. Net sales actually dipped in its latest quarter, despite the broader lines. Even Smart Balance's flagship spreads business has suffered from the competitive threat of discounting rivals with active coupon promotions.

I'm still watching Smart Balance, but I recommended Rule Breakers subscribers to cut this one out of their portfolio diet over the summer.

ZAGG (Nasdaq: ZAGG) -- $7.72
Making screen protectors for iPhones, iPads, and other smartphones has helped Zagg come a long way in a short time. The stock has more than quadrupled since bottoming out at $1.90 five months ago.

Yes, some of those gains are earned. Its latest quarter was stellar, with revenue more than doubling. Gross margins slipped, but the bottom line ultimately grew even faster than ZAGG's speedy top-line pace. Yes, ZAGG has been consistently profitable.

ZAGG has been widening the list of well-known retailers stocking its products and a recent waterproofing patent acquisition is interesting, but it's hard to make a long-term wager on a maker of third-party accessories after a trendy upsurge.

SMART Technologies (Nasdaq: SMT) -- $8.42
Shares of the educator whiteboard maker fell into our single-digit laps last week, after the company posted disappointing quarterly results that triggered analyst downgrades.

The fiscal second quarter report itself was solid, but the company warned that near-term demand is waning. There's nothing as problematic as a company that beats the market's top-line expectations for a trailing quarter, but then goes ahead and lowers its guidance for the entire fiscal year.

Investors already had their reasons to be nervous. SMART's digital whiteboards definitely help educators get their lessons across in high-tech and compelling ways, but we're also coping with budgetary shortfalls that will crimp demand. There are enterprise applications that still make sense in that kind of climate, but the company's own near-term skittishness should be enough to shoo away bulls for the time being.

1-800-Flowers (Nasdaq: FLWS) -- $2.08
It's been a few years since 1-800-Flowers was a growth stock putting the pedal to the petals. The Web-savvy florist and gift shop operator isn't doing so hot these days.

One has to go back nearly three years to find the last time that 1-800-Flowers posted a quarterly profit outside of the seasonally potent holiday period. Its latest quarter featured a slight decline in revenue and a widening EBITDA loss from operations.

Send it a "Get Well Soon" bouquet if you must, but it's probably best to avoid it as an investment until there's actually some whiff of a turnaround scent.

Five for the road
Finding promising stocks while they're still cutting their baby teeth is at the heart of the Rule Breakers newsletter that I write for. You can check it out for free this month with a 30-day trial subscription. There are nearly a dozen active stock recommendations in the growth stock research service trading for less than $10 at the moment, not including former pick Smart Balance. Check those out, and I'll be back with more on the third Monday of next month.

Don't worry. I'll come back with long bullish ideas for next month.