If you've got $10, 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 13 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 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.
|
May 16, 2014 |
March 13, 2009 |
Gain | |
|---|---|---|---|
|
Sirius XM Radio (SIRI +0.00%) |
$3.11 |
$0.198 |
1,471% |
|
Bare Escentuals* |
$18.20 |
$3.66 |
397% |
|
Focus Media* |
$27.50 |
$5.74 |
379% |
|
Geron |
$1.87 |
$4.36 |
(57%) |
|
Ford (F 1.15%) |
$15.76 |
$2.19 |
620% |
*Bare Escentuals was acquired for $18.20 a share in 2010. Focus Media was acquired for $27.50 a share in 2013.
The average gain of 562% in a little more than five years is pretty remarkable. Yes, that also happened to be when the market was bottoming out, but that still blows away every major market index in that time.
Let's go over this month's picks.
LoJack -- $5.40
There was a time when LoJack was an indispensable accessory for new cars. The tracking devices would help authorities nab stolen vehicles. LoJack's future in a world of connected cars may seem iffy, but let's crack open the hood to analyze LoJack's prospects.
LoJack posted a slight dip in revenue in its latest quarter, but it saw trends turn positive in March after auto sales began picking up. LoJack sees sales climbing 8% to 10% this year, and it's hoping to turn the connected car into less of a liability by diving into telematics.
NQ Mobile (NYSE: NQ) -- $8.04
This one is not for the faint of heart. NQ Mobile has seen its share price crater because of accounting concerns initially raised by noted worrywart Muddy Waters. The Chinese provider of mobile Internet services also had to extend last month's filing deadline -- twice.
The potential rewards and risks are substantial. If NQ Mobile's numbers don't add up, this will just be the next bogus Chinese growth stock to buckle. However, if NQ Mobile's right, we're looking at a stock that is now selling for less than five times next year's projected profitability but growing a lot faster. This stock could be at $20 or $0 in a year. It will be feast or famine.
Millennial Media (NYSE: MM) -- $3.84
I'll admit that I was wrong about Millennial Media when I bought in shortly after the IPO. The fast-growing provider of display advertising for mobile applications seemed to be in the driver's seat as the largest player that wasn't directly aligned with Android or iOS. Being operating-system-agnostic in the middle of a smartphone and tablet revolution seemed like a slam dunk, but I'm the one who got dunked on.
Unfortunately for Millennial Media, this has become a cutthroat market where turning a profit has been difficult. There's still top-line growth here. Revenue surged 47% in its latest quarter, and even if we account for the revenue-padding Jumptap acquisition, we still see double-digit pro forma growth. Margin pressures find analyst now pushing out profitability to 2016, but the stock has fallen too hard to ignore at this point.
China Digital TV (STV +0.00%) -- $2.92
Things haven't been easy for China Digital TV. Several years ago it was hailed as a growth stock darling as the leading provider of conditional access systems at a time when China was migrating to digital television. Reality hasn't been as kind, and its most recent quarter was a disappointment.
China Digital TV let the market down by forecasting revenue for the new quarter to clock in 14% lower at the midpoint of its range. There's no need to let the suspense linger. That report comes out tomorrow. The stock has already been discounted in anticipations of a bad report, making this an opportunistic time to come back in if the report proves positive.
Higher One (ONE +0.00%) -- $4.15
This one also started out as a seemingly can't-miss opportunity. Higher One saw a market ripe for disruption in the way that student disbursements are doled out at universities, and caught on with its slick platform.
Business has slowed lately, and last week the stock shed nearly a third of its value after revealing that the Federal Reserve is seeking an administrative order against Higher One for violations related to its marketing and disclosure practices. Investors got spooked by Higher One's filing, pointing out that a negative ruling could result in a credit default. That certainly adds a lot of risk here, but the stock appears to have already been punished as if the worst case scenario will materialize.
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.
