5 Stocks Under $10 Worth Buying

If you've got ten bucks, I have some stock ideas for you.

I've been singling out attractive opportunities in low-priced stocks since my original "Ten 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.

 

12/14/12

3/13/09

Gain

Sirius XM Radio (Nasdaq: SIRI  )

$2.91

$0.198

1,370%

Bare Escentuals*

$18.20

$3.66

397%

Focus Media (Nasdaq: FMCN  )

$23.65

$5.74

312%

Geron (Nasdaq: GERN  )

$1.53

$4.36

(65%)

Ford (NYSE: F  )

$11.10

$2.19

407%

* Bare Escentuals was acquired for $18.20 a share in 2010.

The average gain of 484% in a little more than three years is remarkable.

Sirius XM has led the way, transforming itself from a company that was on the brink of bankruptcy three years ago to a media giant with a scalable model and growing profitability. Focus Media is a leading advertising platform provider in China. The country's growth has slowed, but it's still improving at a healthier clip than the rest of the world.

Geron has been the one loser in the lot. When you buy into young biotechs, you're swinging for the fences. I seem to be striking out this time. Ford has been posting several months of strong sales, though the stock has been stuck in neutral lately.

Let's go over this month's picks.

OfficeMax (NYSE: OMX  ) -- $9.65
My last bet on office supplies in this monthly column is paying off. Shares of OfficeMax rival Office Depot (NYSE: ODP  ) have soared 76% since being singled out five months ago.

The office supply superstores deserve investor attention. All three of the major players are trading for $12 or less, and that's not fair. This is one of the retail specialties that can't be easily "showroomed" out. The three chains have local truck fleets to provide free delivery the next day for orders, and investors will see fireworks here once the economy truly bounces back and companies are spending more.

For now, OfficeMax is in decent shape. Sales have been flat, but the stock is trading for less than 13 times this year's earnings with the multiple dropping into the pre-teens on a forward basis. The 0.8% yield isn't much, but it will keep investors patient until the orders start trickling in again.

Alcatel-Lucent (NYSE: ALU  ) -- $1.24
Until late last week, Alcatel-Lucent had a problem. The Paris-based telecom-equipment giant had debt repayment milestones looming and dire near-term prospects. However, in a move that will allow it to push out its debt maturities a few years, Alcatel-Lucent was able to secure $2.12 billion in new financing.

That's huge, because analysts don't see the company returning to annual profitability until 2004. Alcatel-Lucent has bought itself some serious time.

Chimera Investment Corp. (NYSE: CIM  ) -- $2.71
Let's take a speculative gamble. Chimera has been beaten down because it hasn't filed a financial statement in a year. Detrimental restatements are coming. However, the investor in residential mortgage-backed securities and other real estate-related securities continues to pay out a meaty quarterly dividend that currently gives the stock a whopping 13.3 % yield.

Chimera's portfolio is also appreciating. It announced last week that its book value as of the end of September was $3.31 a share, a healthy advance from its $3.08-a-share book value three months ago. Yes, it's pretty much an unopened can of mystery meat until the restatements are complete, but that also explains the low share price.

TASER International (Nasdaq: TASR  ) -- $7.65
Last week's tragic school shooting in Connecticut is going to stir up the debate for gun control laws. Is there a middle ground in this heated argument that favors TASER's market-leading stun guns?

It's true that there are incidents out there where TASERs were abused and where stun gun targets did more than just temporarily succumb to the numbing of their nervous systems. However, the attraction of a less-than-lethal form of weaponry is undeniable to some people.

As it stands, TASER's rolling. It has blown past Wall Street profit targets in each of its past three quarters -- and it hasn't even been close. We're talking about bottom-line beats to the tune of 600%, 200%, and 75%, respectively, over the past three quarters.

Giant Interactive (NYSE: GA  ) -- $5.19
There aren't too many high-margin and high-growth industries where the major players are trading mostly for single-digit profit multiples.

Online gaming in China just happens to be one of them.

Giant Interactive can be had for a little more than six times this year's projected profitability, even though the provider of massive Web-based games is growing at a clip in the double digits. It also doesn't hurt that the company's semi-annual dividend currently results in a whopping 5.6% yield.

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. 

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.


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