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.

*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.