A stock's share price all by itself isn't very meaningful. A company with 1,000 shares of stock trading for $10 and another company with 10,000 shares trading for $1 are worth the exact same amount of money.
Having said that, there are certain advantages to lower-priced stocks. In addition to making it more economical to employ certain options strategies, a lower share price allows smaller, everyday investors to put more of their money to work right away.
Think of it this way. Let's say you have $300 from your last paycheck to invest, and you want to buy a telecom stock. If you choose AT&T, which trades for $38.24 as I write, you can afford to buy seven shares, leaving about $32 of your money uninvested. On the other hand, if you choose Sprint, which trades for just $8.41, you can buy 35 shares and leave less than $6 on the table -- perhaps just enough to cover your trading commission (depending on your broker). The point is that you aren't leaving as much cash on the sidelines with the lower-priced stock.
With that in mind, here are three stocks that look attractive right now, all of which have sub-$10 price tags. Then read on for a little bit about the potential of each one.
|
Company |
Industry |
Recent Stock Price |
|---|---|---|
|
Cliffs Natural Resources (CLF 0.22%) |
Mining |
$5.69 |
|
Sprint Corp. (S) |
Telecommunications |
$8.87 |
|
Fitbit Inc. (FIT) |
Wearable technology |
$5.51 |
Stock prices are current as of June 2, 2017.
Image source: Getty Images.
Cliffs Natural Resources
Iron ore miner Cliffs Natural Resources has been beaten down quite a bit in recent months. The stock trades for less than $6 per share, and just three months ago, it wouldn't have qualified for this list.
However, I think Cliffs looks rather interesting after the drop. The company has done an excellent job of paying off debt and would have been profitable in the first quarter if it hadn't prudently spent money for that purpose. Debt is still a little too high for comfort, but it has fallen by almost 25% in 2017 alone.
In a nutshell, Cliffs has done a good job of improving its financial condition, and recent drops in iron ore have made the stock much cheaper over the past few months. As the largest supplier of iron ore pellets to U.S. steelmakers, Cliffs stands to benefit tremendously over the next few years, especially if President Trump's $1 trillion infrastructure plan becomes a reality, given his pro-U.S. steel stance.
Cliffs is still a highly speculative investment, so approach it with caution, but if the company's turnaround efforts continue to be successful, and commodity prices cooperate, investors with the patience to wait and the stomach for some volatility along the way could be handsomely rewarded.
Sprint
Sprint is a somewhat different investment from rival telecom giants AT&T and Verizon. Specifically, while AT&T and Verizon both have massive, high-quality wireless networks, Sprint's focus is to compete on price. The company is much smaller in scale than those other two and operates at a significantly lower profit margin. And the company's latest quarter produced a net loss of $0.07 per share, while sales fell short of analyst estimates.
Even so, there are reasons to be positive on Sprint. The company added 187,000 net new subscribers during the quarter and was able to report positive free cash flow for the first time in years. Sprint has been in an ongoing effort to turn the company around, and while it remains to be seen whether it will ultimately be successful, if the company's earnings start to look impressive, there could be lots of upside potential for shareholders.
Fitbit
Shares of wearable-technology company Fitbit have been absolutely crushed since the company's 2015 IPO. The stock has fallen 82% from its first trading day and nearly 90% from its peak. It's fair to say that the market's euphoria on Fitbit has cooled off significantly.
The recent numbers aren't too promising. In its most recent quarter, Fitbit's revenue fell 41% year over year, and the company lost $0.15 per share, down from a profit of $0.10 a year ago. And as my colleague Leo Sun pointed out recently, the company's market share plunged from 29% at the end of 2015 to 19.2% at the end of last year.
Despite the numbers, Fitbit could still have some tricks up its sleeve. New products are expected to launch this fall, including a successor to the Blaze smartwatch that's rumored to have some Apple Watch-beating features. Only time will tell if consumers will embrace the next generation of Fitbit products, but if they do, there is tremendous upside potential. Of course, given its low price, the company could also be an attractive takeover target.
The bottom line
As I mentioned, Cliffs and Fitbit are stocks that I consider to be quite speculative, so if you choose to invest, be sure you can stomach the volatility that will undoubtedly occur, and don't put in money you can't afford to lose.
Having said that, I consider all three of these stocks attractive from a risk-reward perspective, and over time, all three have the potential to deliver outstanding returns in your portfolio.
