It was 10 years ago this summer that I began cranking out a list of attractive stocks that just happen to be trading in the single digits.
The original "10 Stocks Under $10" column proved popular, so I decided to make it an annual feature. Three years ago, I decided to make this a monthly column -- offering up only five low-priced stocks instead.
Perhaps you caught my August column last week? If not, count on future installments on the third Monday of every month.
Many investors -- both speculators and buy-and-hold deal seekers -- are drawn to low-priced stocks. I guess I was pioneering new ground 10 years ago, because at least two other financial sites have gone on to crank out premium newsletters entirely devoted to stock picks in the single digits.
A decade of decadence
I haven't checked back on my original picks in a long time, so I figured now would be a good time for a "where are they now?" profile.
These are admittedly risky stocks, but I'm pretty impressed with the performance even after the past few brutal trading weeks.
|
Company
|
July 11, 2001
|
Aug. 19, 2011
|
Gain/Loss
|
| Suburban Lodges * |
$7.80 |
$9.04 |
16% |
| TiVo (Nasdaq: TIVO ) |
$6.00 |
$7.88 |
31% |
| Helen of Troy (Nasdaq: HELE ) |
$9.45 |
$27.21 |
188% |
| FTD.com ** |
$6.17 |
$6.46 ** |
5% |
| Oil States (NYSE: OIS ) |
$9.65 |
$58.64 |
508% |
| Hollywood Entertainment *** |
$9.35 |
$13.25 |
42% |
| Telefonica Moviles **** |
$6.50 |
$46.82 |
620% |
| ESS Tech ***** |
$8.34 |
$1.64 |
(81%) |
| World Acceptance (Nasdaq: WRLD ) |
$8.70 |
$61.51 |
607% |
| Sirius XM Radio (Nasdaq: SIRI ) |
$8.39 |
$1.77 |
(79%) |
| Average Gain |
|
|
186% |
| S&P 500 |
|
|
(5%) |
*Suburban Lodges was acquired in 2002 for a total payout of $9.04 a share.
**FTD.com merged into FTD Incorporated with each share of FTD.com equal to 0.26 shares in the new company, which was taken private at $24.85 in February 2004. The close is $24.85 times 0.26.
***Hollywood Entertainment was acquired for $13.25 a share.
****Telefonica Moviles was acquired for 0.8 shares of Telefonica. Closing price is the adjusted price of Telefonica -- $19.51 on Friday -- multiplied by 0.8, then adjusted for a 3-for-1 split in January 2011.
***** ESS Tech was taken private in 2008 at $1.64 a share in cash.
With half as many asterisks as stock picks, five of my original picks have since been bought out -- and all but one at higher price points.
I should also point out that I lucked out in that Movie Gallery's acquisition of Hollywood Video parent Hollywood Entertainment was an all-cash deal at $13.25 a share. Movie Gallery filed for bankruptcy a couple of years later.
That said, let's dive into the overall performance and the five stocks still standing.
The average return of 138% may not seem spectacular over 10 years, but keep in mind that the S&P has actually declined -- from 1,180.18 to 1,123.53 -- in that time. Throw in the dividends -- and that includes the 8.8% yield that Telefonica Moviles acquirer Telefonica (NYSE: TEF ) is paying out -- and it still isn't even close.
The gravity of risk
The two stocks sporting negative returns -- ESS Tech and satellite radio giant Sirius XM -- are down big.
I'm actually surprised that there aren't more names in the red. Buying low-priced stocks is like swinging for the fences in baseball. You're going to strike out more often than not, but letting a few winners ride should be enough to deliver market-thumping results.
Consider the 508% return for Oil States International and the 607% surge at World Acceptance. Those monster runs are enough to save the day. If I had bought equal amounts of all 10 stocks, and the other eight went to zero, I'd still be generating positive overall returns because of just those two picks.
Patience and precision
I'm sure that if I revisited each and every installment in this series, I would come across some stinker entries. Snapping up low-priced stocks is not for the weak of heart when it comes to risk tolerance.
However, while many stocks that trade in the single digits will never dig out of their holes, the names that do claw their way out can be deliciously rewarding.
As part of the Rule Breakers analyst team, I do occasionally get to warm up to some low-priced growth stocks that are early in the disruptive process. Many of our current recommendations either started in the single digits or have fallen into low-priced territory given the recent market weakness.
One way or another, I guess we're all drawn to low-priced stocks as potential ground-floor opportunities.
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