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.
June 15, 2012
March 13, 2009
|Sirius XM Radio
*Bare Escentuals was acquired for $18.20 a share in 2010.
The average gain of 359% 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.
Pinnacle Entertainment (NYSE: PNK ) -- $9.74
Vegas and Atlantic City gamblers may have never heard of Pinnacle Entertainment, but that's because the company's six casinos are tucked away in Louisiana, Missouri, and Indiana.
In an interesting move, Pinnacle announced plans to acquire the company behind the Heartland Poker Tour last week. The annual tour is currently in its eighth televised season, making over a dozen stops in casinos around the country.
Pinnacle is trading for just 11 times this year's projected profitability, and it has blown past Wall Street's quarterly bottom-line targets by 35% or better over the past year.
Perfect World (Nasdaq: PWRD ) -- $9.73
There are fewer sectors as cheap as China's online gaming niche.
Heady growth and fat margins make odd bedfellows for the single-digit earnings multiple, but risks of China cracking down on the massive virtual worlds where the country's youth pass their time make this a very speculative area for investors.
Perfect World is one of the weaker players, but it's also one of the cheapest.
The market wasn't happy with Perfect World's latest quarter. Revenue of $114.1 million and an adjusted profit of $0.77 a share were less than Wall Street was targeting, and Perfect World sees sequential weakness. Obviously that's not a good thing. However, how often do you see a consistently profitable company with chunky margins earn $0.77 a share in a single quarter and command a price in the single digits?
It's important to keep an eye on the sequential trends here, but Perfect World is a cheap bet at this point.
ON Semiconductor (Nasdaq: ONNN ) -- $6.86
Chip stocks can be volatile, and toiling away in a cutthroat industry with cyclical swings isn't always fun. However, there are two important takeaways here.
First, ON Semiconductor has blown past Wall Street's profit estimates in the two previous quarters. I like seeing that trend.
Second, ON Semiconductor is likely to post a dip in revenue and profitability this year, but the same analysts that have been underestimating its earnings potential have the stock trading at less than seven times next year's profit forecast.
A123 Systems (Nasdaq: AONE ) -- $1.20
It's hard to get excited about electric cars these days. Gas prices are heading lower and the lithium-ion batteries are too expensive.
Battery maker A123 has plenty of challenges of its own. The company had an embarrassing recall earlier this year, and it's lost out to rivals on some juicy contracts. However, a recent breakthrough at A123 -- technology that can enhance the performance of its batteries in extreme weather conditions -- proves that there may be more value here than the profitless company that naysayers are talking down.
Leap Wireless (Nasdaq: LEAP ) -- $5.44
Cricket -- Leap Wireless' brand of prepaid mobile service -- isn't exactly a household word, but that may change on Friday when the company begins offering the iPhone with a prepaid plan.
As the two largest wireless carriers make it harder to justify going with them by raising rates and scrapping unlimited features, Cricket offers a bargain with $55 for unlimited text, messaging, and data. Sure, folks will have to pay retail for their contract-free smartphones, but this profitless company is about to get a lot more popular in the coming weeks and months.
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.