Whether it's through technical analysis, blindly following the advice of talking heads, or rapid-fire day trading, investors often take precarious shortcuts to generate gains. Of course, another one of the more popular shortcuts is looking for low-priced stocks under the assumption that they could "pop" at any moment.
Unfortunately, this doesn't happen as frequently as one might hope, because of the numerous risks that low-priced stocks carry.
Nevertheless, the fascination for low-priced stocks probably persists for the following reasons:
1. They are often considered dirt cheap.
2. They are linked with turnaround situations.
3. They are associated with small, obscure, and ignored companies.
Price means nothing
Here at the Fool, we do our darnedest to diagnose, prevent, and even cure the critical stock affliction known as "cheap-osis" -- the belief that a stock's per-share price, on its own, tells you whether a stock is cheap or expensive.
Through the use of splits and reverse splits, management can make the price of a company's shares literally anything it wants. That's the reason a company like Cigna (NYSE:CI) -- whose shares are priced above $100 -- might very well be a bargain, while most penny stocks are too risky to buy at any price. It's the business valuation that counts most.
The rules of high/low
Sadly, though, some cases of cheap-osis will never be cured completely. So, with the help of our lovely (and incredibly talented) assistant, the Motley Fool CAPS intelligence database, we'll screen for stocks trading under $10 that also have enough investment merit to earn a CAPS rating of four or five stars. "High-Star" stocks are investments that the CAPS community, in general, believes will outperform the formidable Mr. Market.
So, without further ado, here's this week's list of low-priced high stars:
|
Company |
CAPS Rating |
Price (as of 02/02 close) |
|---|---|---|
|
Symmetricom (NASDAQ:SYMM) |
***** |
$8.45 |
|
Ikanos Communications (NASDAQ:IKAN) |
***** |
$8.23 |
|
Axcelis Technologies (NASDAQ:ACLS) |
***** |
$6.90 |
|
Entrust (NASDAQ:ENTU) |
***** |
$4.13 |
|
U.S. Gold Corp. (AMEX:UXG) |
***** |
$4.98 |
As always, don't view these stocks as formal recommendations, but rather as ideas you may want to research further.
With that said, Symmetricom is one interesting company that might be worth some of your own Foolish due diligence.
Perfect time to get in?
I firmly believe that trying to time the market is a fruitless investment strategy, but maybe investing in Symmetricom -- a supplier of timing solutions -- would prove to be a more worthwhile alternative.
Symmetricom's primary objective is to manufacture products that measure time with unprecedented precision. Just how precise? Well, the company's technology allows customers to keep time within 40 billionths of a second over the course of a 24-hour period. In other words, it would take more than 500,000 years for a Symmetricom clock to accumulate an error of one second. Now, you probably won't get chewed out for being 100 billionths of a second late to a lunch meeting, but for any operator of wireless, wireline, and enterprise networks, precise synchronization is crucial.
As a result, Symmetrcom sells its products to a wide range of markets -- like the government, research centers, aerospace companies, and especially telecommunication providers. In addition to a diversified customer base, the company also has foreign exposure, with nearly a third of its sales coming from non-U.S. agencies. For the past three years, a single client accounted for no more than 10% of the company's revenue.
Triple plays take timing
The stock itself has languished within a relatively firm trading range over the past couple of years because of uninspiring top-line growth. However, judging from the growing number of bulls in our CAPS community and a recent upgrade from Roth Capital, many investors feel that Symmetricom is on the cusp of some market-stomping opportunities. Specifically, the sentiment is that Symmetricom should benefit substantially as more and more telecom providers look to synchronize "triple play" bundles (Internet, phone, and cable TV) to deliver a higher-quality experience.
Given the recent double-digit revenue gains in its telecom solutions division -- suggesting that the company is indeed starting to benefit from those favorable trends -- Symmetricom seems deserving of its five-star rating. Here are two CAPS players who think the time is just right for Symmetricom investors:
- Stephanejohnson: dominant position in the network synchronization business, where a new upgrade cycle is coming. Has cash to diversify into growth products with its telco customers.
- gfrank2: Telecom equipment supplier of timing and frequency components. A leader in this area will benefit from telecom upgrades. Improving results indicate buildup has begun after telecom consolidations.
The Foolish conclusion
Despite our Foolish attempts to educate the investment public on cheap-osis, the allure of low-priced stocks is simply undeniable. The good news, though, is that there are indeed single-digit wonders out there that can also make great investments.
So, if you really have a bad case of the 'osis and would like to find more good low-priced stocks for yourself, head over to Motley Fool CAPS. And feel free to take your sweet time.
Foolish contributor Brian Pacampara reads the financial footnotes to prevent cheap-osis and holds no position in any of the stocks mentioned. The Fool's disclosure policy is always right on time.
