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3 Great Stocks Under $10

By Anders Bylund – Jun 19, 2017 at 12:04PM

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Daktronics, SunPower, and AU Optronics are selling at bargain-basement prices today. Here's why all three arguably deserve a bigger price tag.

Great stocks don't always sell at a great price. At the same time, cheap stocks tend to be cheap for a reason. So when you see a solid business trading at bargain-basement prices, that's a rare combination that should make your inner value investor drool in anticipation.

Here are three great stocks trading at less than $10 a share today. Read on to see why SunPower (SPWR 0.69%), AU Optronics (AUO 2.83%), and Daktronics (DAKT 0.24%) deserve higher price tags right now.

$10 bill in jeans pocket.

Image source: Getty Images.

Sunny days ahead

The solar power industry is having a rough year in 2017, but that could be good news for opportunistic investors.

Shares of industry giant SunPower have fallen nearly 50% lower over the last year as street prices for solar cells and panels plunged.

But energy experts see solar power serving up as much as 17% of the global energy market in 18 years, up from just 2% today. The long-term growth opportunity is massive, and should add up to nearly $3 trillion in solar installations and investments over the next two decades.

Many solar companies will fall along the way to that huge pot of gold, but others will make it big. SunPower is positioning itself to make into the second category by carving out a market niche in utility-scale solar installations.

You can buy SunPower stock at less than $8 per share today, which works out to 0.4 times trailing sales and just 5.7 times free cash flow. That's a great deal for a stock with such a long runway of potential growth ahead of it.

Pixel-perfect payoffs

You'll find another great value play in LCD and OLED screen builder AU Optronics.

More than 80% of the company's quarterly sales come from TV screens, tablet displays, and monitors for laptops and desktop PC systems. To set itself apart from the competition, AU Optronics has developed curved screens and bezel-less displays, both of which are in strong demand from its device-building customers.

Trading at roughly $4 per share and 5.3 times trailing earnings, AU Optronics is a low-priced stock but a high-quality business. Sales are growing at an annual clip of 24.5%, the net losses of recent years have turned into an 11% net profit margin, and AU Optronics' $4 billion of long-term debt balances are nearly matched by $2.8 billion in cash equivalents.

That's a rare combination of solid business prospects and a low share price. And don't forget about AU Optronics' 2.7% dividend yield. At the very least, this stock deserves a spot on your watch list.

DAKT Chart

DAKT data by YCharts.

Buckle your chinstraps for a bumpy ride

Daktronics makes electronic scoreboards, digital traffic signs, LED billboards, and computerized price displays for your local gas station. The lion's share of this company's sales come from commercial displays and stadium deals.

In particular, large-scale stadium installations accounted for roughly 36% of Daktronics' total sales in fiscal year 2016. The so-called Live Events division is a lumpy business, as one multimillion-dollar contract can move the needle without warning. Earnings and cash flows are prone to sudden plunges and jumps, even as top-line sales keep trucking along with modest but stable growth.

As I'm writing this, Daktronics shares trade at $9.65 per share and 14 times trailing free cash flows. That's a perfectly fair price, especially when matched with a generous 2.9% dividend yield. There's nothing wrong with buying in at these prices, and I'm certainly content to hold on to my own Daktronics shares right now.

That being said, the company misses Wall Street's earnings targets fairly often. When that happens, it's usually a result of the stadium division's lumpy order flows. So share prices plunge for a while, setting dynamic investors up to buy in at even lower prices for a while.

That was the case a year ago. A couple of soft earnings reports drove Daktronics' shares way down to the $6 range while dividend yields skyrocketed to more than 6%. Buying in at that point would have locked in those juicy effective dividend yields, and the stock has bounced back to 46% gains over that 52-week period.

So you might want to wait for the next plunge-and-surge cycle. There are no guarantees that the pattern will repeat, but history does show Daktronics running through a lot of these predictably unpredictable bounces. That's another strong name for your watchlist.

Anders Bylund owns shares of Daktronics. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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