If you've got ten bucks, I have some stock ideas for you.
I've been singling out attractive opportunities in low-priced stocks since my original "10 Stocks Under $10" column 10 years ago, and I've seen plenty of stocks with pocket-change prices generate incredible gains.
There are risks, and they are readily apparent given the recent volatility. 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 2009 -- when low-priced stocks bottomed out -- to prove my point.
March 16, 2012
March 13, 2009
|Sirius XM Radio||$2.26||$0.198||1,041%|
*Bare Escentuals was acquired for $18.20 a share in 2010.
The average gain of 445% in three years is remarkable.
Four of the five names have gone on to multiply several times over. Sirius XM has become a stable and profitable company with fast-growing free cash flow. Chinese advertising mogul Focus Media has overcome some of last year's rocky accusations. Geron's failed to live up to expectations, but is the lone stinker in the list. Ford's engines are revving up again, and there are style points to be awarded for being the lone American automaker not to cave in during the government bailout.
Let's go over this month's picks.
Monarch Casino & Resort
The economy is taking baby steps in the right direction, and that means gamblers will be itching to turn their small sums of incremental income into larger jackpots.
Casino operators should fare well in the near future, and that brings us to Monarch, the owner of the Atlantis resort in Reno. The casino features 1,450 slot and video poker machines, more than three dozen table games, a race and sports book, keno lounge, and poker room in an 824-room resort complete with a massive spa.
Monarch's spreading its wings after acquiring the smaller Riviera Black Hawk in Colorado last year. At least one analyst sees the move -- and improvements at Atlantis -- leading to profitability more than doubling to $0.77 a share, pricing the stock at less than 13 times this year's earnings.
Yes, Monarch has missed estimates in three of the past five quarters, but things should get better as headwinds are becoming tailwinds.
Let's play a game called "Price That Stock," where I throw a couple of metrics at you and you dictate a fair share price.
The company I'm thinking about earned $0.70 a share last year. Analysts see it coming through with a profit of $0.84 a share this year and $0.92 a share come 2013. The pros also see double-digit revenue growth in both of these upcoming years.
This game isn't going to work. You know the name of the company. You see the price. Why is Shanda Games worth less than six times trailing earnings (and even less if we apply the multiple to the future)? All of China's online gaming companies are cheap, but this is the one trading in the single digits.
If you want another reason to buy into Shanda Games beyond the fact that it's trading at a ridiculously low earnings multiple relative to its growth, let's talk about consolidation. China's largest video website acquired its nearest rival at a huge premium last week. You can expect more of China's dot-coms to gobble up one another given the low valuations.
A great acquisition target is Bitauto, the company behind the Easypass online marketing platform for new cars and Transtar platform for used cars. Bitauto posted solid fourth-quarter results earlier this month. Revenue climbed 43% higher as adjusted earnings soared a little better than 50%.
As China continues to grow its economy at a headier clip than the rest of the world's, the one-two combo of more citizens interested in automobiles and migrating online will be huge for Bitauto.
Despite the stigma of declaring a 1-for-4 reverse stock split to drag its shares out of the penny-stock muck back in November, Move has been a winner lately. The parent company of Realtor.com and other real estate-related websites has seen its stock pop nearly 50% higher so far in 2012.
The housing industry is showing signs of bottoming out and actually starting to recover in some markets, and that's worked out well for the leading websites offering up residential listings.
After rightfully blasting the parent company behind the Spanish-language Quepasa.com social networking website last year, I changed my tune after its acquisition of the substantially larger parent of myYearbook at a great price.
The result is that the growth of social-discovery speedster myYearbook is more than offsetting the declines at the company's namesake site. Revenue for the combined companies rose 24% last year. Quepasa was ridiculously overvalued a year ago on its own, but now it's a better company than you may think at an attractive price point.
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 this month with a 30-day trial subscription. There are roughly a half-dozen active stock recommendations in the growth-stock research service trading for less than $10 at the moment. Check those out, and I'll be back with more on the third Monday of next month.
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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Ford. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.