The past few months have been kind to most stocks, but the volatility with an upside bias has been huge for the right low-priced stocks. I've been following feasible 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 it hit its lows in March, just take a look at the five picks from March.
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July 17, 2009
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March 13, 2009
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Gain
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Sirius XM Radio (Nasdaq: SIRI )
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$0.39
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$0.20
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95%
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Bare Escentuals
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$8.00
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$3.66
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119%
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Focus Media
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$8.00
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$5.74
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39%
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Geron
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$7.56
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$4.36
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73%
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Ford (NYSE: F )
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$6.14
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$2.19
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180%
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Even I couldn't fathom an average gain of 101% from those five stocks in just four months. Sirius XM Radio and Ford were on the ropes.
This certainly doesn't mean that I expect the companies in this month's list to double by November. If anything, the market's rally is going to be challenged if the fundamentals don't catch up to buoyant share prices.
These are risky stocks and they can be pulled in either direction. Let's go over the list.
Alvarion (Nasdaq: ALVR ) -- $4.18
Connectivity is a major global theme. Alvarion is a leader in WiMAX routers, providing broadband signals that can offer online access for miles. For now, canvassing large areas with wireless connectivity has been a quiet revolution in the U.S. Alvarion's juiciest contracts have come from international orders.
Alvarion's stateside luck may be turning, though. The new administration sees affordable connectivity as a national priority. Alvarion also landed a $100 million contract with a rural operator last month, a deal that will benefit up to 546 small communities.
Telcos won't give up without a fight. They have a rival platform in the works. However, you have to like the trend toward inevitable blankets of Web coverage.
NetScout (Nasdaq: NTCT ) -- $9.82
In the rocky realm of IT, it helps to be a niche leader in helping companies with high-speed networks monitor uptime. In industries where you can't afford a pronounced outage -- such as online brokers and government defense platforms -- you can count on finding NetScout in the Rolodex.
This doesn't mean that NetScout is completely immune to the whims of its cash-strapped customers. It earned $0.86 a share in its latest fiscal year, but is expected to earn just $0.84 a share this year. Then again, have you seen predictions elsewhere? Given the stock's single-digit price, that's an attractive valuation for a company that is keeping the bleeding to a minimum.
Internet Brands (Nasdaq: INET ) -- $7.44
When Internet Brands went public at $8 a share two years ago, it was something out of a time capsule. As an operator of not only websites, but also sites that specialize in out-of-favor big-ticket purchases like travel, real estate, and cars, it may have been the only one in the room to not be in on the joke.
Well, it's having the last laugh now. Internet Brands is one of the few dot-coms growing its bottom line convincingly. Analysts see a profit of $0.28 a share this year, jumping to $0.38 a share in 2010. Getting in for less than the 2007 IPO is the cherry on top.
E*TRADE (Nasdaq: ETFC ) -- $1.23
There are plenty of profitable discount stock brokers, so why go with one that is bleeding red and cuffed to a burdensome balance sheet? Well, I guess it's hard to resist the charms of the E*TRADE Baby.
Despite the online banking fallout, E*TRADE continues to grow its brokerage accounts. Trading activity is also picking up across the industry. It's clearly a gamble, but I see the company getting it right before it runs out of time.
IMAX (Nasdaq: IMAX ) -- $8.14
It's a good summer to be IMAX, which provides enhanced cinematic experiences. IMAX has versions of some of the season's hottest sequels from the Transformers, Harry Potter, and Night at the Museum franchises.
A recent shift in teaming up with multiplex operators to speed up the expansion through joint-venture deals will make every subsequent IMAX release more material than the one before. Profitability has been difficult, but that is about to change. Wall Street expects a small profit this year, before a big jump to $0.33 a share next year.
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 the mission of the Rule Breakers newsletter service. You can check it out for free with a 30-day trial subscription. There are roughly a dozen active recommendations in the growth-stock research service trading for less than $10 at the moment, including IMAX and Alvarion. Check those out, and I'll be back with more on the third Monday of next month.
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