5 Stocks Under $10

If you've got 10 bucks, I have some stock ideas for you.

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, and they are readily apparent given the recent volatility. 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 2009 to prove my point.

Company

3/18/11

3/13/09

Gain

Sirius XM Radio (Nasdaq: SIRI  ) $1.71 $0.198 764%
Bare Escentuals* $18.20 $3.66 397%
Focus Media $27.42 $5.74 378%
Geron (Nasdaq: GERN  ) $4.78 $4.36 10%
Ford $14.49 $2.19 562%

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

The average gain of 422% in two years is remarkable. Sirius XM is leading the way. The fledgling service was on the brink of bankruptcy two years ago, but now it's been growing its earnings, free cash flow, and profitability.

Geron may be the slacker in the lot, but tackling cancer was never going to be an overnight success story. It posted a wider than expected quarterly loss last month, but deficits come with the territory as an upstart biotech.

Let's go over this month's picks.

Zagg (Nasdaq: ZAGG  ) -- $6.81
The maker of invisibleSHIELD screen covers for smartphones and tablets still hasn't gotten over this month's debut of iPad 2's Smart Cover. Are third-party providers being squeezed out by the world's most valuable tech company?

I don't think so. The magnetic multifunctional Smart Cover is a pretty neat tablet cover, but there's a lot more to Zagg than simply making protective products for the iPad.

Last week's quarterly report was stellar. Revenue soared 157%, and earnings grew even faster.

Zagg's guidance calls for revenue to climb 25% to 31% this year. Gross margins will dip slightly given the diversified product mix, but operating margins should hold up reasonably well. Zagg is trading for just 13 times this year's projected profitability and 10.5 times next year's target. It's a good price for a company's that's not as dead as its recent share price drubbing suggests.

Net Servicos de Comunicacao (Nasdaq: NETC  ) -- $9.48
I'm not a fan of the stateside cable operators and telcos. Two words: cord cutting. However, the niche is different in buoyant overseas economies that are in earlier stages of the migration. Net Servicos is a Sao Paulo, Brazil-based provider of cable, voice, and Internet.

There have been a few hiccups in 2010, but analysts see earnings climbing 37% in 2011 on a 12% uptick in revenue.

Flextronics (Nasdaq: FLEX  ) -- $7.17
Numbers don't lie. Flextronics is cheap. Wall Street is banking on a profit of $0.88 a share in its current fiscal year, which ends this month. The pros see net income of $1.03 a share for the year ahead.

Revenue is also huffing and puffing at a double-digit percentage clip, so why is this stock trading at a P/E multiple in the single digits? The Singapore-based maker of printed circuit boards is in a cyclical sector, but the numbers point to modest growth. It also only helps that Flextronics has topped analyst guesstimates for seven consecutive quarters.

TASER International (Nasdaq: TASR  ) -- $3.76
"Don't Tase me bro" jokes have been stale for years, and the same can be said of the ubiquitous stun-gun maker. Its stock has been waffling about in the single digits for ages.

TASER has been able to ink several meaty orders, despite budgetary shortfalls. Despite its shortcomings, a stun gun remains a less catastrophic weapon than a bullet-packed firearm.

Last year's losses are now being painted over with projected profits on double-digit revenue growth. The gee whiz factor may be gone from TASER's weaponry, but its popularity continues to grow.

Xueda Education (NYSE: XUE  ) -- $8.57
The fast-growing provider of tutoring services in China went public at a lousy time. Executing an IPO five months ago just as investors were souring on both Chinese equities and educators wasn't going to find it moving to the head of the class.

Pity.

Xueda Education is a speedy sleeper. Revenue soared 89% in its latest quarter. Earnings growth isn't as impressive, but at least Xueda's profitable and moving in the right direction.

Clients are paying an average hourly course fee of $23.30 to be tutored through one of Xueda's 207 training centers. It plans to open 70 more centers this year, targeting 44% to 53% in top-line growth. The smartest pupils are the ones that take advantage of buying into Xueda as it trades below its IPO price.

5 for the road
These five stocks aren't trading in the single digits by accident. If I'm right about the catalysts, though, they may not be trading in the single digits for too much longer.

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 several active stock recommendations in the growth stock research service trading for less than $10 at the moment, including Net Servicos. Check those out, and I'll be back with more on the third Monday of next month.

Add Zagg, Net Servicos, Flextronics, TASER, and Xueda to your watchlist today.

Net Servicos is a Motley Fool Rule Breakers choice. The Fool owns shares of Ford Motor, which is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz wonders how many people know that Alexander Hamilton is the one on the $10 bill. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On March 21, 2011, at 1:51 PM, pete163 wrote:

    How to kill a Company? Look at what you forgot for under 5 dollars, Citi "C" With Pandit new Idea of the reverse split the stock should be at .50 cent's "SOON" So get in quick the 1 to 500 goes off in may. This is his Idea of building up a Company, he must be on drugs. There won't be anything to split by May!

  • Report this Comment On March 21, 2011, at 11:19 PM, SeeTheForest wrote:

    While the return of these stocks is very impressive, why did you highlight that year's stock? How about 2010 or 2008? Wouldn't it be more helpful and revealing to pick a year that was not at the bottom of the market? Or at least disclose the return of the other years?

  • Report this Comment On March 22, 2011, at 6:11 PM, TMFBreakerRick wrote:

    SeeTheForest, I highlight Mar. 2009 because it was the market bottom. It's done to show the impact of high-beta high risk/high return stocks trading for less than ten bucks.

    You're welcome to dig out any of the monthly lists. They're all out there. If you picked a list during a market top it would probably fall harder than the market as a whole.

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