3 Great Stocks Under $10

Image source: The Motley Fool.

If you've got $10, I have some stock ideas for you.

I've been highlighting attractive opportunities in low-priced stocks since my original "5 Stocks Under $10" column 15 years ago, way before the practice became cool. I've seen plenty of stocks with pocket-change prices generate incredible gains. 

I've also seen many, if not most of them, come undone. The risks are substantial on this turf. There are usually good reasons for a stock 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.

*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 642% in a little more than seven years is pretty remarkable. Yes, that also happened to be when the market was hitting rock bottom, but that still blows away every major market index in that time.

Let's go over some new potential winners at single-digit prices.

Zynga -- $2.76

Zynga (ZNGA +0.00%), the original darling of social gaming, has fallen on hard times. The publisher of FarmVille, Mafia Wars, and Words With Friends is in a funk as revenue, bookings, and player metrics are all edging lower. Its guidance for the current quarter calls for more of the same. 

Video gamers are fickle, and the lifeline for hot mobile games is even shorter. Zynga is at the mercy of continuing to crank out hits -- like CSR Racing 2 this summer -- only to have something ready to go when popularity starts to wane a few weeks later. An emphasis on virtual casino games is providing steadier productivity. Its two biggest games during the second quarter -- Zynga Poker and Wizard of Oz Slots -- accounted for more than a third of its online game revenue.    

There are a few good reasons to warm up to Zynga. For starters, it's not going away anytime soon. More than a third of its market cap is backed by the $868.4 million in cash and investments on its debt-free balance sheet as of the end of June. That gives it the resources to keep swinging for the fences, and it also makes the stock even cheaper than the low stock price seems to suggest. 

There's also industry consolidation. Candy Crush Saga parent King Digital and Clash of Clans publisher Supercell have been bought out at decent premium over the past year. Zynga may need a monster hit at that level to smoke out a rich exit, but its growing catalog of hits and former hits has to be tempting to a potential buyer if its enterprise value stays around the current $1.5 billion for too much longer. 

Sirius XM Radio -- $4.16

The satellite radio provider is another name that has been takeout fodder lately, but it's not in Zynga's out-of-favor situation. Shares of Sirius XM hit a new 10-year high this summer. It remains consistently profitable. Its revenue has been growing at a steady 10% annualized clip in recent year, with free cash flow growing even faster. 

Sirius XM is also in a unique competitive position. There are many audio entertainment options for drivers, particularly in connected cars, but Sirius XM remains a monopoly in its satellite radio niche. There are now more than 30 million subscribers, and unlike other subscription-based services, we haven't seen users flinch at Sirius XM's modest rate increases. 

Extreme Networks -- $3.91

Extreme Networks (EXTR 2.06%) delivers software-fueled networking solutions. From providing Wi-Fi solutions at the Super Bowl to improving the efficiency of colleges, medical centers, and other networking-intensive enterprises, Extreme Networks gets around. 

The company isn't scorching when it comes to top-line growth. Revenue actually dipped in its recently concluded fiscal 2016, though that was pitted against a huge single order in the fiscal fourth quarter of 2015. Sequential growth is moving in the right direction, and Extreme Networks is targeting modest 2% to 4% growth for the new fiscal year. 

The bottom line is growing even faster, and that's where Extreme Networks earns its place on this list as a bargain. It is fetching less than 12 times this fiscal year's expected earnings and less than 10 times next year's target. Extreme Networks is also in an industry that has experienced a flurry of buyout activity, but like Zynga and Sirius XM Radio, it's an investment that should serve investors well even if it has to go it alone. 

Not every stock in the single digits will stay there. All three of these investments have potential bullish catalysts that can help them push into higher ground.