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 a dozen 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 recent volatility. There are often good reasons that stocks are 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.
| Company |
Share Price Dec. 13, 2013 |
Share Price March 13, 2009 |
Gain |
|---|---|---|---|
|
Sirius XM Radio |
$3.53 |
$0.198 |
1,683% |
|
Bare Escentuals* |
$18.20 |
$3.66 |
397% |
|
Focus Media* |
$27.50 |
$5.74 |
379% |
|
Geron |
$4.77 |
$4.36 |
9% |
|
Ford |
$16.59 |
$2.19 |
656% |
*Bare Escentuals was acquired for $18.20 per share in 2010. Focus Media was acquired for $27.50 per share in 2013.
The average gain of 625% in less than five years is pretty remarkable.
Let's go over this month's picks.
LightInTheBox (LITB 5.76%) -- $6.35
When it comes to Chinese e-tail, it's hard to fault LightInTheBox's model. The online retailer sources fancy dresses, high-tech housewares, and other items on the cheap in China only to sell them worldwide, with free shipping for large orders.
LightInTheBox went public in June at $9.50, but quickly popped into the double digits as its story caught on. Unfortunately for investors, LightInTheBox has kicked off its public tenure with back-to-back disappointing quarters.
The good news is that LightInTheBox is still growing. Expectations were too high before, but the price is compelling now for a uniquely positioned e-tailer expected to grow its sales in the high teens in the holiday quarter.
Fusion-io (FIO +0.00%) -- $8.40
It's been a great year for tech stocks, but don't tell that to Fusion-io investors. Shares of the data storage specialist have surrendered 63% of their value, and it hasn't been pretty.
Fusion-io has seen revenue growth turn into top-line declines and quarterly profits turn into losses. Its CEO even stepped down earlier this year.
The good news at this point is that Fusion-io has still managed to beat Wall Street's decaying expectations in three of the past four quarters. Analysts also see a 20% surge in revenue in its next fiscal year, beginning in the summer.
Once we get past this month's tax-loss selling that's causing folks to dump Fusion-io and cover realized gains elsewhere, the stock should bottom out.
Annaly Capital Management (NLY 0.35%) -- $9.94
Mortgage REITs have come under selling pressure lately, and that's pushing Annaly down into the single digits for the first time in more than five years.
Yes, I'm fully aware of what the inevitable spike in rates will do to agency mREIT returns. However, this high-yielding niche has already been slammed. The actions are priced in. Even if payout rates come -- slashing the currently savory yield of 13.7% -- there are still some healthy returns to be made on the income end. With the selling overdone thanks to a harsh "sell" rating initiated by Goldman Sachs earlier this month, I see this as a chance to buy low and score some capital appreciation down the line as well.
Rambus (RMBS 2.76%) -- $9.54
Shares of Rambus moved nicely higher last week following a legal settlement resulting in a patent licensing agreement where it will receive as much as $10 million per quarter for the next seven years.
That's great, but Rambus was already expected to break through into profitability next year without this meaty assist. Aided by healthy double-digit revenue growth and now legal validation, the future looks bright for Rambus.
QuinStreet (QNST +1.96%) -- $8.23
When it comes to online advertising, QuinStreet seemed to have the right idea. It would build up niche-specific verticals including Schools.com and OnlineDegrees.com for higher learning, as well as Insurance.com and MoneyRates.com for financial services, only to use them to provide vetted leads for advertisers.
The model is profitable. QuinStreet is fetching 20 times this fiscal year's earnings and less than 16 times next fiscal year's profit target, but top-line growth has been stagnant. The tide may be turning. QuinStreet may have posted flat year-over-year revenue growth in its latest quarter, but that was actually its best performance in two years.
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.
