If you've got 10 bucks, I have some stock ideas for you.
I've been singling out attractive opportunities in low-priced stocks since my original "5 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.
|
Stock |
May 18, 2012 |
March 13, 2009 |
Gain |
|---|---|---|---|
| Sirius XM Radio | $1.885 | $0.198 | 852% |
| Bare Escentuals* | $18.20 | $3.66 | 397% |
| Focus Media | $20.47 | $5.74 | 257% |
| Geron | $1.37 | $4.36 | (69%) |
| Ford | $10.01 | $2.19 | 357% |
*Bare Escentuals was acquired for $18.20 a share in 2010.
The average gain of 359% in a little more than 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 it's 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.
Zipcar
When Zipcar went public at $18 last year, it didn't seem as if the leading car-sharing service would ever qualify for this monthly list.
It's not as if Zipcar has lost the keys. Revenue climbed 20% in its latest quarter, and there are now 709,000 members paying to rent any of Zipcar's thousands of automobiles -- with gas and insurance included -- by the hour or day.
Profitability has been spotty. Zipcar posted a small loss in its latest quarter after clearing back-to-back profitable periods. However, that's simply the price of the company's aggressive approach to domestic and international expansion. Its four original markets are generating pre-tax profit margins of 21% and grew revenue at a heady 21% clip in the first quarter.
Now that Zipcar's getting as cheap as its hourly rental rates, it's an easy pick this month.
Majesco Entertainment
I haven't been a fan of the video game industry in recent years. The trends are working against the companies during these disruptive times. This doesn't mean that there won't be a few winners along the way.
Majesco is a small publisher that is best known for its Zumba Fitness and Cooking Mama video game franchises. It has an interesting title coming out later this year -- NBA Baller Beats -- that's a rhythmic dribbling and ball-handling game using a real ball.
Sure, it sounds like a recipe for disaster between iffy floor surfaces and loose ball fouls, but it's also unique enough to stand out in what has been a stagnant market for three years.
Along the way, buyers are getting a profitable and growing company fetching just six times this year's projected earnings and a mere five times next fiscal year's target. Whether it succeeds on its own or is an accretive acquisition for a larger, desperate rival, Majesco's a win-win deal in a losing industry.
Zhongpin
How about another stock fetching just five times next year's income forecast?
Zhongpin is a major pork producer in China. Yes, the world's most populous nation is slowing, but that's not going to get in the way of pork consumption. Even China's iron-fisted governing ways that may impact many consumer-facing companies won't slow demand for Zhongpin's pig products.
Cellcom Israel
Israel's leading wireless carrier has shed more than two-thirds of its value to qualify for this monthly column.
It's hard to see it sticking around in the single digits for long.
Sure, it has problems. Earnings took a 43% tumble in last week's quarterly earnings, and the mobile mogul was just kicked off MSCI's Israel Index. The fat yield will bring buyers back, even if Cellcom has to cut its dividends in the face of poor profitability.
Dice Holdings
A lot of quality companies are just being neglected these days. Dice is one of them. The company operates several career-specific websites, including Rigzone for the energy market, eFinancialCareers for financial services, and its namesake Dice.com for techies.
Revenue climbed 15% in its latest quarter, with earnings soaring 31%. Investors can buy into Dice at a reasonable 16 times this year's estimated earnings and just 14 times next year's mark.
It's a good price for a good company.
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.
If you enjoy low-priced stocks because they have the potential to generate huge gains, you'll want to read about the next Rule-Breaking multi-bagger. The report's free, so it's even cheaper than some of these stocks. Check it out now.
