Low-priced stocks are often low-priced for a reason: They have significant problems to overcome. Yet for those that have fixed their problems, they may be ready to take off to the next level.
At Motley Fool CAPS, a "penny stock" is any stock trading under $10, and you'll find some of the best CAPS All-Stars regularly seeking out winning investments there. We identify them with a penny icon. This week, we'll look at two low-priced investments the CAPS community has singled out as those with the best chances of success by bestowing four- and five-star ratings on them. We just might want to turn our umbrellas upside-down to catch them!
(out of 5)
5-Year EPS Growth
Return on Investment
|BGC Partners (Nasdaq: BGCP )
|McMoRan Exploration (NYSE: MMR )
Source: FinViz.com, Motley Fool CAPS.
These two companies may be low-priced, but that isn't necessarily enough to suggest they'll have an easier time recording big gains. Low-priced stocks are often low-priced for a reason. We have to check and see what their catalysts for growth might be before diving in to the shallow end of the stock pool.
Brokering a new opportunity
The commercial real estate market may not have imploded like I and other analysts thought likely, but it still managed to decimate some of the major players in the industry, like venerable CRE broker Grubb & Ellis, which filed for bankruptcy protection in February. Although the effects of the market's malaise still linger, there are also opportunities for some smart players to benefit.
Financial services specialist BGC Partners, which was owed $30 million by Grubb & Ellis, scooped up the CRE firm by forgiving its debt and providing an additional $15 million to it so it could operate throughout the bankruptcy proceedings. It just folded Grubb & Ellis into another CRE services firm, Newmark Knight Frank, that it acquired last year.
Yet commercial real estate isn't BGC's primary business. Rather it's a global brokerage and its eSpeed platform transformed the way people trade government bonds before it launched new products targeting equities markets, foreign exchanges, futures, and interest rate swaps. It's a rough-and-tumble market where the sharp elbows of ICAP, GFI Group (NYSE: GFIG ) , and other foreign investment houses vie for customer attention, and now that it's in the CRE business, it's going to bump up against CBRE Group (NYSE: CBG ) , Cushman & Wakefield, and Jones Lang LaSalle, all of which are considerably larger and more experienced.
Highly rated CAPS All-Star lennysims likes that the cash it has in the bank amounts to almost 40% of its share price and it pays a nice dividend that yields 10.1%, though he also takes note of its dangerously high payout ratio:
I am going with this one for the long run for now. The almost 11% inside ownership holds well for the dividend not being cut, but it has a payout ratio of over 200%. What I really liked about this one was the $3 in cash per share. Even if the div takes a cut which I think is possible; I do not see the stock falling too much farther.
Tell us on the BGC Partners CAPS page or in the comments section below if the divergence into the CRE industry is wise, then add the stock to your watchlist to see if the company can maintain its place among the brokerages.
Swimming with the fishes
Despite meeting revenue expectations and beating profit forecasts, oil driller McMoRan Exploration still hasn't recovered from the shock it sent through the market when it reported problems related to its Davey Jones No. 1 site in the Gulf of Mexico. That sent its shares tumbling, and no past performance numbers have been able to stem the exodus.
Part of the problem is that it is also forecasting lower production numbers for 2012 because of the problems in the Gulf, expecting as much as a 28% decline in output. It holds a 63% working interest and a 50% net revenue interest, and much of McMoRan's success floats on its ability to capitalize on this well.
Deepwater drilling is picking up in the Gulf, but it's predominantly being done by the multinationals. Royal Dutch Shell and Chevron (NYSE: CVX ) have secured more than 60% of the permits that have been issued there.
CAPS member chicagoadvisor thinks it's speculative to bet on McMoRan at the moment, but the oil-rich region should eventually pay off: "Between Davy Jones & a few other Gulf projects, the amount of land they cover should hit $$$. This is a speculative trade from my end, if it makes money, it'll be a nice pay day. I like it."
Let us know on the McMoRan Exploration CAPS page if you agree with this assessment, then put its stock on the Fool's free portfolio tracker to see if it will be able to drill through to greater growth.
Make some change
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