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 -- when low-priced stocks bottomed out -- to prove my point.
|
Stock |
Jan. 20, 2012 |
March 13, 2009 |
Gain |
|---|---|---|---|
| Sirius XM Radio | $2.10 | $0.198 | 961% |
| Bare Escentuals* | $18.20 | $3.66 | 397% |
| Focus Media | $20.02 | $5.74 | 249% |
| Geron | $1.73 | $4.36 | (60%) |
| Ford | $12.59 | $2.19 | 475% |
*Bare Escentuals was acquired for $18.20 a share in 2010.
The average gain of 404% in three years is remarkable.
It's true that Geron's been getting slammed over the past year. Focus Media tumbled late last year after a bearish report questioned the integrity of Focus Media's numbers. However, the result is that it all adds up for this basket of speculative stocks in the end.
Let's go over this month's picks.
ZAGG
Making invisibleSHIELD screen protectors for smartphones, ZAGGfolio iPad keyboard stands, and other third-party accessories for portable gadgetry has been a sweet business for ZAGG.
Just last month, ZAGG raised its guidance for 2011, bumping its top-line projection from $170 million to $175 million. The stock still took a hit on the seemingly upbeat news. It was the third time that ZAGG had increased its revenue outlook after last June's acquisition of iFrogz.
Gadget makers rarely get it right on their own, so there will always be a market for third-party accessory makers. ZAGG is one of the better ones, and it's now trading at just 11 times the $0.75 a share that analysts believe it will earn in 2012.
8x8
Web-based telephone service seems to be a no-brainer in the enterprise realm, where companies are always looking to cut corners in areas that won't ding corporate efficiency.
It all seems to be working out for 8x8, which despite its value-meal share price has posted profitable results in each of its 11 previous quarters. Stretch back all the way to when the economy started to teeter, and 8x8's record of profitable quarters is an impressive 16 out the past 17 periods.
The small tech company posted blowout quarterly results last week. Revenue climbed at a healthy 31% pace, and 8x8's net income of $0.04 a share beat Wall Street's bottom-line target.
MCG Capital
As far as business development companies go, MCG was one of last year's worst performers.
The provider of commercial financing for middle-market companies may impress income investors with its juicy 14.8% yield, but that wasn't much of a consolation for investors who saw the stock itself shed 43% of its value through a disastrous 2011. When you're as small as MCG, a single bad investment or two can crush you.
MCG is fighting back in 2012. It initiated a $35 million stock buyback last week. That may not seem like much, but at current prices it would be enough to retire 10% of the current shares outstanding.
Through the first nine months of 2011, MCG Capital's net asset value fell from $7.54 a share to $6.44 a share. Writing down the value of a sizable cascading investment in a competitive local exchange carrier did most of the damage. However, now the leveraged MCG Capital is trading at a discount to NAV that's too steep to ignore.
Nokia
The market hasn't taken kindly to the Finnish handset maker's decision to back Windows Phone as its smartphone operating system of choice. It doesn't seem to matter that the former market darling is still a global juggernaut, or that the Windows mobile operating system move will send billions of dollars Nokia's way.
Then again, it's not as if Nokia needs the money. The company has billions in the bank. Investors are simply looking to the future, figuring that Nokia's market share will continue to slide.
I'm not a raging bull on Nokia's growth prospects, but I know a good value when I see it. The company is selling for less than even the value of its namesake brand! Between the juicy yield and the steady profitability, it's hard to hang up on Nokia at today's prices.
EnerNOC
This provider of solutions for managing electricity on power grids took a hit back in September after slashing its guidance for both 2011 and 2012.
Declining capacity prices and a dispute with its largest customer haven't been helping. However, the benefits of power grid management are real. EnerNOC won't be out of favor forever.
If investors can stomach the near-term red ink, Wall Street sees a profit of $0.77 a share next year and $1.37 a share come 2014.
Five 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 roughly a half-dozen active stock recommendations in the growth-stock research service trading for less than $10 at the moment -- EnerNOC included. Check those out, and I'll be back with more on the third Monday of next month.
If you enjoy low-priced stocks because they have the potential to generate huge gains, you'll want to read about the next Rule-Breaking multibagger. The report's free, so it's even cheaper than these stocks. Check it out now.
