5 Stocks Under $10

Thinking small can pay off big if your aim is good.

I've been singling out attractive opportunities in low-priced stocks since my original "5 Stocks Under $10" column nine years ago, and I've seen plenty of stocks with pocket change prices generate incredible gains.

There are risks, of course. 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 of last year to prove my point.

Stock

April 16, 2010

March 13, 2009

Gain

Sirius XM Radio

$1.08

$0.198

454%

Bare Escentuals

$18.20

$3.66

397%

Focus Media

$17.44

$5.74

204%

Geron

$5.49

$4.36

26%

Ford

$13.42

$2.19

513%

*Bare Escentuals was acquired for $18.20 a share.

The average gain of 319% in just 13 months is remarkable. Sirius XM Radio (Nasdaq: SIRI  ) had braced investors for the possibility of a bankruptcy filing a month earlier. Ford (NYSE: F  ) may have been the better-positioned stateside automaker, but no one was buying cars at the time. It's a whole new world now with Sirius XM gaining subscribers and new auto sales flying through the sunroof at Ford.

Let's go over this month's picks.

JA Solar Holdings (Nasdaq: JASO  ) -- $5.85
There have been few sectors packing the kind of volatility that solar energy has in recent years. The wild price swings are understandable. The concept of photovoltaic panels generating power is a winner in theory, but lofty implementation costs and lower-priced alternatives can trip up the reasonable thesis.

JA Solar is a China-based maker of solar cells. The good news is that analysts paint a bright picture of near-term profitability. The pros see a profit of $0.54 a share on a huge 75% top-line spurt this year, before easing up to generate net income of $0.51 a share come 2011. The ups and downs come with the territory, but if JA Solar can sustain its profitability, it is sorely underpriced today.

PMC-Sierra (Nasdaq: PMCS  ) -- $9.42
You don't need to be small to trade small. PMC-Sierra commands a $2 billion market cap as a leading provider of semiconductor solutions in the Internet infrastructure space. It took a step back early last year -- as most companies shackled to flimsy IT budgets -- but it's rolling again.

PMC-Sierra closed out 2009 in robust fashion, with fourth-quarter adjusted profits more than doubling on a 15% increase in revenue. Wall Street expects the good times to continue when it reports its first-quarter results on Thursday, with non-GAAP earnings nearly tripling on a 45% spike in revenue.

Things should smoothen out from here, but analysts still see 34% growth to $0.67 a share this year. There's a modest guesstimate target of $0.73 a share next year.

PDL BioPharma (Nasdaq: PDLI  ) -- $6.28
There are plenty of values to be found in Big Pharma -- with healthy yields to boot -- but that only opens up the opportunities for even cheaper drug companies that aren't on Mr. Market's radar.

PDL BioPharma is trading at just over five times the $1.16 a share that it is projected to earn this year. It's cheap, but with a huge asterisk. It rakes in royalty checks from the sale of products that rely on PDL BioPharma's humanized antibody patents. The rub is that those patents expire toward the end of 2014.

Shareholders are likely to collect generous distributions over the next few years, and the rate may accelerate if its patents are milked further over the next few years. The company's future come 2015 is a cloudy one, but the low price today and chunky disbursements along the way will help soften that risk.

Jamba (Nasdaq: JMBA  ) -- $3.23
It's amazing to think that Jamba Juice -- the chain that popularized fresh fruit smoothies with boosts -- is already 20 years old.

As a shareholder and regular customer, it's as refreshing as one of its blended treats to see the stock winning back investor respect lately. Jamba shares nearly quadrupled last year and have gone on to nearly double so far in 2010.

This isn't a perfect story. Comps have taken a hit as consumers shied away from premium beverages during the recession, and profitability is a year away, according to analysts. However, I like some of the chain's recent moves to license its signature smoothies and the menu additions of oatmeal, hot beverages, and heartier eats. If the big burger and java chains think that they can break into smoothies, Jamba is right to fight back without sacrificing the quality of its core line.

Harris & Harris (Nasdaq: TINY  ) -- $4.98
Nanotechnology -- or tiny tech -- doesn't seem to have the same kind of buzzword panache that it packed several years ago. Harris & Harris knows it. The venture capitalist with a nanotech bent has seen its reported net asset value shrink in recent years, but it's not entirely the company's fault.

A venture capitalist is often as popular as its ability to cash in on its portfolio through IPOs or private-equity acquisitions. The global market meltdown threw the mother of all wrenches into that system, but the climate appears to be changing. There have been several successful IPOs in recent weeks, improving the pipeline's prospects.

Harris & Harris began the year with a net asset value of $4.35 a share. It's only trading at a modest premium to its holdings, and that's a metric that may spike if a hot IPO or two comes out of the Harris & Harris camp in the next year or two.

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. (I’ve rated each of these five stocks to outperform the market in Motley Fool CAPS; you can agree or disagree here.)

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 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 Harris & Harris. Check those out, and I'll be back with more on the third Monday of next month.

Harris & Harris is a Motley Fool Rule Breakers pick. Ford Motor is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz wonders how many people know that Alexander Hamilton is the one on the $10 bill. He does not own shares in any of the stocks in this article, except for Jamba. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (45)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 19, 2010, at 5:02 PM, Drakon1976 wrote:

    Goldman must have killed the enthusiasm to rip people off on Sirius shorting......Gotta believe "You Fools" are on their radar.

  • Report this Comment On April 19, 2010, at 5:59 PM, Drakon1976 wrote:

    Goldman must have taken the wind out of all the manipulators involved in Sirius. Must be frightening to know that you may be next on the SEC hit list. The Fool may want to take a step back and decide if they can keep hiding their collusive reporting that reeks of stock price manipulation to anyone with half a brain.

  • Report this Comment On April 19, 2010, at 6:00 PM, Drakon1976 wrote:

    Ohhh by the way.......SIRIUS IS GONNA CRUSH THE SHORTS!

  • Report this Comment On April 19, 2010, at 6:02 PM, plange01 wrote:

    both sirius and ford are high on the companys sure to go bankrupt list.

  • Report this Comment On April 19, 2010, at 8:14 PM, Chinastocks55 wrote:

    Excellent article.

    May I add LPIH, LongWei Petroleum to the list?

    LPIH is gaining attention as one of the top tier China energy plays for 2010-2012.

    Highly profitable, strong growth and about to uplist.

    LongWei Petroleum is well worth doing serious DD on right now.

    Just today they raised guidance for the second time in recent weeks.

    http://www.redchip.com/visibility/investor.asp?symbol=LPIH

  • Report this Comment On April 19, 2010, at 10:31 PM, Joelshann wrote:

    Hi, my name is Drakon1976.

    I'm a DRAgon. No I'm a niKON. No, I'm an ancient Chinese myth that takes pictures. Kind of like an iPhone, only not really.

    I was born in 1976. That means I'm 12. Okay, really, I can count...I just have to take the dragon suit off so I can see my toes. Okay--got it. Yep, I'm 34.

    I've never written an article for Motley Fool. I've never rated a stock with Motley Fool. My profile is empty. Typing with giant clawed fingers is hard. And if I hit the wrong key, my camera starts taking pictures like lightening! Click, click. click!

    I sleep with my stocks. We're having babies. Me and little Sirius. Lots of little guys running rampant on all the news boards.

    So, watch out you American non-mytholigical-creatues-who-can't-take-a-picture-with-your-finger! I'm going to eat you.

    Well, not really. But I sure an going to pretend that I am. Meanwhile, I'm due over at Seeking Alpha to slam rational humanoid creates for saying anything about my half-child Sirius.

    Bu-bye for now...but WATCH OUT! GROWL. I'll be back. Kind of like the terminator, but not really.

  • Report this Comment On April 20, 2010, at 10:52 AM, southernbeachguy wrote:

    Sirus has been under valued for a long time. Their PPS should be considerable higher than what it is. They basically have no competition, great programming and the capability to expand Worldwide. If that happens their Revenue could go up 10 fold. Every car sold under 5 years old is an opportunity for a new Sirus client. This is reoccurring revenue, which means that they keep getting money without having to have a cost to sell.

  • Report this Comment On April 20, 2010, at 2:17 PM, Drakon1976 wrote:

    Shorts are eating it again today!

  • Report this Comment On April 20, 2010, at 8:37 PM, MotleyFoolster wrote:

    Another Motley Fool "How To Cherry Pick Stocks with 20/20 Rear Window Vision" article. Seriously, never trust a guy with the middle name of an ancient philosopher dishing out stock advice.

  • Report this Comment On April 21, 2010, at 6:34 AM, Joelshann wrote:

    Posting (opinions) and participating (in community) are diametrically opposed realities.

  • Report this Comment On April 21, 2010, at 3:18 PM, SIRIDoom wrote:

    SIRI will satisfy the DASDQ 1.00 rule this time.

    SIRI stock holders are sure to benefit from this time of Goldman Sachs Crisis. We all know the story of Goldman shorting SIRI and the “Black Box”, High Speed Trading that Goldman uses to pump and dump the market. We all know the merger loan story that Mel KarmaCrook made with Goldman to control the stock with non-existing paper used to short SIRI to death.

    The heat is on Goldman Sachs to produce a scape goat to satisfy public demand. US Government is scrambling in fear to “Make People Happy”.

    The New World Order of Corruption has been exposed. The names of the bad laws, bad programs, bad organizations are about to change. The corruption system is reorganizing. They are in fear of the public anger. So, we all get a few weeks of Headlines, Double Speak from Crooked Politicians. We are going to get some new laws out of all this noise.

    No thing is going to change because crooks never send crooks to jail.

    Enjoy this short time of lower stock manipulation. It is not going to last …

  • Report this Comment On April 22, 2010, at 7:56 AM, Br0oklyn wrote:

    NWO Has Been Exposed This Year More Than Ever.

  • Report this Comment On April 23, 2010, at 10:58 AM, blimpcaptain wrote:

    Interesting picks! Solar has been rough but is a good long call. I've been a huge fan of JMBA since I first visited the store in Times Square some years ago. Along with IMAX, it was one of my two serious picks for 2010...and so far, the best gainer in my portfolio (92.9%).

    Here's a coverage I wrote back in November on the stock over at ProofTrader.com:

    http://www.prooftrader.com/AnalystCoverage.aspx?userholdingi...

  • Report this Comment On May 01, 2010, at 12:57 AM, 1caflash wrote:

    Rick, thanks for writing. My belief is PDLI should Quit giving shareholders Special Dividends and use those millions to help resolve its legal problems while also focusing on new opportunities for future gradual growth. It needs to seriously create Investor Enthusiasm instead of handing out monies Semi-Annually. It can start by doing the "Tighten Up" [one of my favorite songs], or else Sirius' share price could pass it! PDLI, Get With It!! This is a Bull Market, and You Are Riding A Donkey while making Lawyers rich!!!

  • Report this Comment On September 04, 2010, at 10:41 AM, gimponthego wrote:

    Everyone should have a "line in the water" when it comes to catching "The Big One." Taylor Devices (TAYD) trades around, or just under $5. Their seismic dampers are the best in the world for some of the highest profile buildings in the world:

    http://cbs2.com/local/LAX.earthquake.sim...

    TAYD has an office in So. Cal. now that they have perfected, and are marketing, seismic dampers for wood frame, residential buildings. California is overdo for "The Big One." Any seismologist worth their salt will tell you the same.

    .

  • Report this Comment On September 04, 2010, at 11:06 AM, gimponthego wrote:

    Sorry about the piece "Discovery Channel" did on TAYD in relation to the remodeling of the LAX airport not being available. Perhaps you might go to www.discovery channel.com and search "history" for seismic related programs. When it comes to vital, well run, low cost companis, TAYD should be right in their with TINY.

    TAYD just (last week) issued their quarterly and it's a beaut!

    http://buffalo.bizjournals.com/buffalo/stories/2010/08/23/da...

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