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 "10 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.
|
Company |
April 20, 2012 |
March 13, 2009 |
Gain/Loss |
|---|---|---|---|
| Sirius XM Radio | $2.23 | $0.198 | 1,026% |
| Bare Escentuals* | $18.20 | $3.66 | 397% |
| Focus Media | $23.51 | $5.74 | 310% |
| Geron | $1.67 | $4.36 | (62%) |
| Ford | $11.41 | $2.19 | 421% |
*Bare Escentuals was acquired for $18.20 a share in 2010.
The average gain of 418% in a little more than three years is remarkable.
Four of the five names have gone on to multiply several times over. Sirius XM has become a stable and profitable company with fast-growing free cash flow. Chinese advertising mogul Focus Media has overcome some of last year's rocky accusations. Geron's failed to live up to expectations, but is the lone stinker in the list. Ford's engines are revving up again, and there are style points to be awarded for being the lone American automaker not to cave in during the government bailout.
Let's go over this month's picks.
ReachLocal
ReachLocal helps small businesses target local traffic online. This isn't some algorithmic paid-search behemoth. ReachLocal has Internet marketing consultants at the local level providing hands-on assistance.
ReachLocal surprised analysts with a small profit from continuing operations in the final quarter of last year, but Wall Street isn't banking on consistent profitability for a few more quarters. Along the way, ReachLocal is growing its business and buying back its stock at ridiculously low price points. The dot-com marketer grew its revenue 24% during the holiday quarter, and analysts are eyeing 18% growth this year.
Zynga
I haven't always been a fan of the leading social gaming company. I think the valuation -- even now -- is high. Last month's roughly $200 million purchase of Draw Something established a worrisome precedent, and Zynga recently said that it plans to continue to snap up smaller app makers.
Despite these concerns, it's awfully tempting to pick up Zynga now that it's trading below December's IPO price of $10. Why not own Facebook ahead of next month's IPO? Keep in mind that Zynga accounted for 12% of Facebook's revenue -- and most of its revenue outside of display advertising during last year's holiday quarter. If Facebook's IPO is well-received -- and it should be -- Zynga could be back in double digits next month.
Hudson City Bancorp
A couple of years ago, Hudson City bragged about being one of the bankers that passed on the government bailout of faltering banks.
Things haven't been going as smoothly lately for Hudson City. The company posted a sharp deficit during last year's fourth quarter on a hit to fund debt extinguishments. Its CEO went on a medical leave in February.
However, there's still something to be said about a conservative regional bank that is trading at a reasonable 11 times this year's projected earnings. Because it's a good actor in terms of stress tests, Hudson also isn't limited to the token penny dividends being shelled out by bigger risk takers. Hudson City is currently commanding a healthy yield of 4.5%.
ZELTIQ Aesthetics
Investors looking for a riskier pick may want to consider ZELTIQ as a battered turnaround situation. The company behind the CoolSculpting machines that literally freeze the fat cells off love handles was clobbered last week.
ZELTIQ posted disappointing quarterly results that included a sequential dip in revenue. Its CEO also stepped down for "personal" reasons.
Lost in all the negativity is that the number of procedures performed during the quarter was actually up sequentially. The installed base of CoolSculpting systems also recently topped 1,000. There have been more than 300,000 procedures performed since its FDA-approved introduction.
Genworth Financial
Shares of Genworth shed more than 20% of their value last week after the company announced that it was delaying the IPO of its Australian mortgage-insurance business until next year.
Holding back on unloading the troublesome unit naturally introduces more uncertainty into the insurer, but have you sized up the valuation at this point? Genworth is fetching less than six times this year's projected earnings and less than four times next year's bottom-line forecast.
Some risks are too cheap not to consider.
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. 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.
