5 Stocks Under $10

I make it a habit of proving that big gains can be had in stocks with small prices.

I've been pointing 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 generating incredible gains.

There are risks, naturally. Good reasons often exist 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 earlier this year.

The average gain of 302% in just 14 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.

The Knot (Nasdaq: KNOT) -- $8.22
I've been a fan of the leading wedding-planning website for years, and I highlighted The Knot in this monthly column last summer. The stock had momentum at the time, so I figured it would be my final opportunity to sing its praises.

I was wrong.

The recession has caused some engaged couples to delay their matrimonial plans. This stings The Knot, as the operator of online gift registries and a lead provider to local wedding-related service providers.

However, the company's fundamentals are starting to say "I do" as of late. The Knot posted respectable first-quarter results earlier this month. Revenue rose by 16%, fueled by a 31% spike in national online advertising. Breakeven results reversed a small loss from a year earlier. In the meantime, the company sports a debt-free, cash-rich balance sheet. 

Marchex (Nasdaq: MCHX) -- $5.15
As a collector of domain names, I was excited to see some big-ticket transactions last week. Dating.com and Slots.com sold for $1.75 million and $5.5 million, respectively.

The sudden interest in the value of popular domain names leads me to Marchex, a stock that I fancied several years ago on the merit of its portfolio of more than 200,000 domain names. They're not all gems, but some, including Cuisine.com and Remodeling.com, would fetch a pretty penny in a resale.

Marchex isn't just a rich portfolio of Web addresses. It also runs popular online advertising exchanges and the OpenList local search network.

This isn't Marchex at its best. Revenue has dipped in recent quarters, and profitability has been marginal. Analysts don't expect revenue and earnings to grow again until next year. However, Marchex does pay out a small quarterly dividend. That will make the waiting easier until it bounces back with the online-advertising revival or makes some prolific asset sales.

TICC Capital (Nasdaq: TICC) -- $8.08
A low stock price doesn't necessarily translate into a low yield. TICC Capital recently bumped its quarterly distributions from $0.15 to $0.20 a share. If it's able to stick to the higher rate, we're talking about an investment that yields close to 10%.

TICC provides capital to small- and midsized technology companies. That capital usually comes in the form of debt, but there's occasionally an equity kicker. This was a terrible place to be when the recession was at its darkest, but TICC's prospects are brighter now. Its net asset value (NAV) per share has risen from $7.46 to $8.87 over the past year. The shares are currently trading at a healthy discount to NAV, so TICC offers something for growth, value, and income investors. 

Kid Brands (NYSE: KID) -- $9.91
This company was known as Russ Berrie until a name change last year, to reflect its wider product lines in infant and juvenile products.

Growth is back at Kid Brands. In the most recent quarter, net sales inched 9% higher and earnings more than doubled. It expects to earn at least $0.67 a share this year on at least $256 million in net sales. Even if the "at least" in its outlook winds up being the year-end result, it would still be a welcome step up from the $0.54 a share it earned last year on a top line of $244 million.

I like Kid Brands for the same reason I'm upbeat on The Knot as we head out of a recession. Some folks have held off on wedding dates, just as some have put off having children during the economic downturn. This will change, and demand for Kid Brands' nursery gear and goods will climb nicely.

Health Grades (Nasdaq: HGRD) -- $7.08
Consumers checking out hospitals or physician referrals often lean on Health Grades, the company behind its namesake independent health-care ratings guide. Its collection of websites, including WrongDiagnosis.com and HealthGrades.com, received 57.4 million unique visitors during the first three months of the year.

Revenue climbed by 20% in its latest quarter, and Health Grades expects the pace to continue through all of 2010. Its bottom line is also playing along. Analysts see a profit of $0.27 a share this year and $0.39 a share come 2011. It earned $0.23 a share last year. The projected growth defies the recent consistency, as Health Grades has posted a profit of $0.06 a share in each of the past four quarters. In other words, things are about to get better, making this an ideal time to make the grade.

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