5 Stocks Under $10

Has there ever been a better time to dive into the due diligence of low-priced stocks than now? The past few months of rallying markets have been kind to the out-of-favor stocks that really took it on the chin when the bear was growling.

I've been following stocks trading in the single digits for years. I began singling out attractive opportunities with the original "5 Stocks Under $10" eight years ago.

If you want proof of Mr. Market's positive spin on its forgotten equities since its March bottom, just take a look at the five picks from March.

The average gain of 82% in just three months is remarkable. Sirius XM Radio and Ford were on the brink of bankruptcy before battling back.

Gravity cuts both ways, naturally. After three months of buoyant stocks, it wouldn't surprise me to see a breather. I'll try to take a more conservative bent with this month's list. 

Sara Lee (NYSE:SLE) -- $8.78
Weren't food stocks supposed to be recession-resistant? Well, that's only true to a certain extent. Once the economy is so bad that folks are snapping up cheaper house labels over brand-name stuff, it hits Sara Lee in the gut.

The company's finances aren't doing the company behind Hillshire Farm deli meats and Endust furniture sprays any favors. It's been posting charge-laden losses as it sports negative tangible book value and billions in debt. It also doesn't help that Goldman Sachs downgraded Sara Lee this month. However, the company is still nicely profitable on an adjusted basis. The stock hasn't traded in the double digits since February, but that is exactly what I expect to happen once the economy improves and consumers trade back up to Sara Lee.

Aberdeen Asia-Pacific Income Fund (NYSE:FAX) -- $5.36
I've been a fan of closed-end funds for ages, especially when you can get in at a discount to Net Asset Value (NAV). I also like funds that offer investing methodologies that are difficult for individual investors to replicate.

This Aberdeen globetrotter satisfies on both counts. It buys Asian and Australasian debt. As of the end of its 2008 fiscal year, the fund was invested with 47% of its exposure in Australia and 49% in Asia (including New Zealand). The fund has consistently paid a monthly $0.035 dividend since 2002, giving it a juicy 7.8% yield at the moment.

The great thing about closed-end funds is that their market prices can trade for more or less than the value of their net assets. When the fund is out of favor -- as it was last fiscal year, when its shares fell by 34% relative to the mere 24% decline in NAV -- it can lead to some pretty steep discounts. The fund has made up most of the difference, but it's still trading for less than Tuesday night's NAV of $5.84 a share. With a reasonable expense ratio of 1.22% of assets before interest expense, this is a great way to play emerging markets, chunkier overseas yields, and the possibility of a shrinking dollar.

Wendy's/Arby's Group (NYSE:WEN) -- $3.92
OK, so maybe the union of the roast-beef-slicing masters at Arby's and the bronze medalist among burger chains at Wendy's hasn't exactly panned out. However, just as I never expected to be able to buy Sara Lee for less than $10, did you ever think you'd see a share of Wendy's fetching less than one of its value meals?

I realize that the company is in a funk financially, but it's hard to bet against a company that is ringing up billions in system-wide sales annually through its network of 10,000 company-owned or franchised restaurants.

Giant Interactive (NYSE:GA) -- $8.04
Online gaming specialist Giant Interactive is a rarity. It's one of the few companies in China posting year-over-year declines in revenue and profitability. The company's flagship ZT Online multiplayer game is in a lull, and investors can certainly turn to its faster-growing rivals for better fundamentals at cheap valuations.

Thankfully, Giant Interactive is also priced to move. The stock is trading for just 13 times this year's projected profitability and 11 times next year's bottom-line target. Yes, that's right -- analysts see the company resuming its growing ways in 2010.

Bare Escentuals -- $7.73
The minerals-based cosmetics specialist has more than tripled since bottoming out three months ago. The Motley Fool Rule Breakers recommendation is also a rerun from my hot stock list from March.

You have to like the makeup maven. Despite its torrid run, Bare Escentuals is still trading for a P/E multiple in the single digits. It's also coming off a better-than-expected first-quarter showing.

Five for the road
I swung for the fences back in March. This time I'm aiming for bunt singles. That doesn't mean these are risk-free picks. 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 mission of the Rule Breakers newsletter I write for. You can check it out for free this month with a 30-day trial subscription. There are nearly a dozen active stock recommendations in the growth-stock research service trading for less than $10 at the moment, including Bare Escentuals. Check those out, and I'll be back with more on the third Monday of next month.