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5 Stocks Under $10 Worth Buying

By Rick Munarriz - Oct 15, 2012 at 10:05AM

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It's all about the Hamiltons, baby.

If you have 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 stocks 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.

 

Oct. 12, 2012

March 13, 2009

Change

Sirius XM Radio (SIRI 0.79%)

$2.78

$0.198

1,304%

Bare Escentuals*

$18.20

$3.66

397%

Focus Media (FMCN)

$24

$5.74

318%

Geron (GERN 8.53%)

$1.37

$4.36

(69%)

Ford (F 3.89%)

$10.12

$2.19

362%

*Bare Escentuals was acquired for $18.20 a share in 2010.

The average gain of 462% in a little more than three years is remarkable.

Sirius XM has led the way, scoring a multiyear high last week after once again bumping its subscriber target higher. Meanwhile, Focus Media is a leading advertising platform provider in China. The country's growth has slowed, but it's still improving at a healthier clip than the rest of the world.

Geron has been the one loser in the lot. When you buy into young biotechs, you're swinging for the fences. I seem to be striking out this time. Ford, however, cranked out another strong month of sales in September.

Let's go over this month's picks.

Cypress Semicondutor (CY) -- $9.88
Cypress specializes in programmable system-on-chip products that deliver flexible solutions for engineers and developers. Cypress is the global leader in USB controllers, and it's a strong player in SRAM memories.

This was a hot company a couple of years ago, but the shares fell into the single digits late last week for the first time in more than two years.

There's a reason for the slide. Analysts see revenue and earnings falling 20% and 43%, respectively, this year. They do see growth resuming next year, but not to its prior levels.

The good news for patient investors is that the stock's drop finds the shares yielding a healthy 4.4%. It's earning more than enough to keep that dividend going.

Roundy's (NYSE: RNDY) -- $5.83
Roundy's is another company that fell to a new low last week. The difference here is that Roundy's hasn't been around as a public company for long. The regional grocery store operator went public in February at $8.50.

This hasn't been a good time to be a conventional supermarket chain. Operating margins are taking a hit, and at least one prolific player suspended its dividend this summer.

Roundy's investors better hope this chain is not next. The stock's 15.8% yield is a major draw these days for the profitable retailer.

"Future declarations of dividends are subject to approval of the Board of Directors and may be adjusted as business needs or market conditions change," Roundy's noted in its most recent release.

Thankfully, analysts see steady yet slow growth in the near term.

Arena Pharmaceuticals (ARNA) -- $9.13
These are exciting times in the world of obesity-tackling drugs.

After a 13-year lull, the FDA is starting to allow new weight-loss drugs to hit the market. That's where Arena steps into the spotlight.

Arena gained FDA marketing approval this summer for lorcaserin. Hitting the market as Belviq, lorcaserin targets a G-protein receptor that makes recipients feel content. Belviq is unlikely to be an overnight success, but the side effects are mild, and Arena has an aggressive and motivated marketer championing the drug.

Arena is a risky company: If Belviq is a disappointment with consumers, the stock will get hammered. However, if it's a success Arena's heading much higher.

Arena has been one of this year's hottest stocks. The shares have popped nearly fivefold in 2012. But we're still in the early stages here, if Arena's aim is true.

Vringo (NYSEMKT: VRNG) -- $4.87
Vringo has become a patent-rich lottery ticket, and the odds of winning are far greater than those of your state lottery.

The app developer has managed to get the attention of the search engine giants after wielding the power of recently acquired search-related patents, and the payoff may be substantial.

Maxim Group analyst John Tinker boosted his price target on the stock -- from $6.50 to $10 -- due to the potential of a lucrative settlement with dot-com giants.

Synovus Financial (SNV 0.83%) -- $2.37
It's hard to get excited about regional bankers after all the financial-services industry has put both investors and the general public through in recent years.

However, Synovus appears to be clawing its way back. It has now posted three consecutive quarters of better-than-expected profitability, and it will be looking to stretch that streak to four quarters when it reports next week.

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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Stocks Mentioned

Arena Pharmaceuticals, Inc. Stock Quote
Arena Pharmaceuticals, Inc.
ARNA
Synovus Financial Corp. Stock Quote
Synovus Financial Corp.
SNV
$42.32 (0.83%) $0.35
Cypress Semiconductor Corporation Stock Quote
Cypress Semiconductor Corporation
CY
Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$6.38 (0.79%) $0.05
Geron Corporation Stock Quote
Geron Corporation
GERN
$1.40 (8.53%) $0.11
Ford Motor Company Stock Quote
Ford Motor Company
F
$13.63 (3.89%) $0.51
Focus Media Holding Ltd. Stock Quote
Focus Media Holding Ltd.
FMCN

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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