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 10 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.
Aug. 12, 2011
March 13, 2009
|Sirius XM Radio||$1.87||$0.198||1,077%|
*Bare Escentuals was acquired for $18.20 a share last year.
The average gain of 452% in a little more than two years is remarkable.
Sirius XM Radio
Let's go over this month's picks.
This maker of mobile Internet equipment has seen better days. Revenue fell by 21% in its latest quarter, and Tellabs let hundreds of employees go in an attempt to shave costs and preserve its capital.
Tellabs has earned its knocks, posting larger-than-expected losses in each of the past three quarters. The red ink is problematic, though analysts see a return to profitability next year. That's probably when the company will be investing in communication equipment again, but if you wait until the rebound is tangible, Tellabs will probably already be in the double digits.
Meritor makes braking systems, axles, and other gear for commercial vehicles.
This may not sound like a tantalizing specialty in these iffy economic times, but Meritor's cyclical ways are starting to come around. Analysts see Meritor earning $0.65 a share this year after posting a profit of just $0.21 a share. For next year, the pros are targeting net income of $2.07 a share.
How often do you see a stock trading in the single digits pegged to earn that much the following year? If you're hungry for a stock trading for a mere four times next year's forecasted profitability, hit the brakes and check out Meritor.
Pacific Biosciences of California
As a leader in the latest generation of human DNA sequencing, Pacific Biosciences is turning heads by aiming to sequence an entire human genome in 15 minutes for just $1,000 by 2013. This is dramatically cheaper -- and faster -- than earlier generations of DNA sequencing, potentially making it a common entry in medical records.
JPMorgan downgraded the stock two weeks ago, despite Pacific Biosciences posting better-than-expected quarterly results. There are concerns that health-related expenditures will get slashed in the country's attempt to cut costs, but Pacific Biosciences is too cheap at this point. The company is actually in a better place fundamentally than it was when the stock was trading in the high teens earlier this year.
I was skeptical when this Chinese online retailer closed at nearly $30 on its first day of trading during its IPO last December. Now that the stock is trading at a third of that price, I think the time is right to get to know it a little better.
Dangdang is barely profitable, and a lot of that has to do with its dependence on books. It stocks hundreds of thousands of titles, yet this ultimately translates into an average sale of roughly $12. That metric will improve as Dangdang uses books to bait initial shoppers before stocking more big-ticket items, a tactic that obviously played out well for Jeff Bezos' stateside e-tailing behemoth.
CBIZ provides business services -- from accounting to managing corporate health insurance plans -- to mostly smallish corporations where outsourcing is a cost-effective solution. CBIZ has big clients, too, but the real growth here will come from small companies that need to scale quickly.
This is a highly fragmented sector, and CBIZ has been making the most of the situation by gobbling up small regional players along the way.
Growth hasn't been all that impressive even with the acquisitions in the mix. However, CBIZ did buy back a ton of stock last year, improving profitability on a per-share basis. That will do, at least until the economic climate improves for startups.
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 I write for. You can check it out for free this month with a 30-day trial subscription. There are a half-dozen active stock recommendations in the growth stock research service trading for less than $10 at the moment, including Pacific Biosciences of California. Check those out, and I'll be back with more on the third Monday of next month.