Low-priced stocks -- companies that will run you between a fiver and a 10-spot per share -- are risky. Most stocks don't trade in the single digits by accident. Either they have yet to prove themselves as public companies or perhaps they once proved themselves, but have since failed. I mention that going in because as much as I relish digging for gold in neglected mines, it's not for the faint of heart. Or pocketbook.
I've been lucky. Since 2001, I have put out four different lists of 10 recommended stocks trading for less than a Hamilton, and each of the annual installments has gone on to beat the market handily. Last year's batch has been huge, with the average pick soaring 43% higher against a more modest 5% gain in the S&P 500.
Sweet, but quite risky. That said, let's dive into a brand-new list. I've got the first five selections here, and the other half will come on Thursday.
Big screens. Small share price. That's one way to approach the leader in gargantuan cinematic experiences. For years, Imax was seen mostly as a provider of high-tech sensory delight to science centers and metropolitan museums. It was projecting some amazing educational documentaries on enormous proprietary screens with booming sound systems.
Now the company's focus has shifted toward mainstream movie buffs. By remastering Hollywood hits and introducing a line of Imax screens that can be retrofitted into once-fading multiplexes, it's drawing orders from all over the world as movie operators look to amp up the moviegoing experience. The traditional night at the movies has been increasingly threatened by the popularity of state-of-the-art home theater systems; the traditional movie theater industry has seen attendance dip for three straight years. But Imax operators have thrived by showing hit flicks such as Batman Begins and Willy Wonka simultaneously with their conventional theater runs. Even theatrical duds like Polar Express have been huge for Imax, even on repeat showings.
Analysts expect earnings to grow by nearly 30% this year after a 35% spurt in 2005. That prices Imax at a relatively cheap 18 times this year's bottom line. Imax was singled out last year in the Rule Breakers newsletter service. The premium research product emphasizing ultimate growth investing hasn't shied away from low-priced stocks in the past. In fact, five of its recommendations since its 2004 inception have been for stocks that were trading in the single digits at the time.
Ubiquity rarely comes in single-digit-priced packages. Well, meet TiVo. The pioneer in DVR (digital video recorder) technology has seen its share price disintegrate as cheaper knock-offs flooded the market and its largest distributor turned into a competitor.
However, this could be a turnaround year for patent-rich TiVo; it's expected to narrow losses substantially on a 25% uptick in sales. Higher-margin opportunities are percolating in licensing and marketing, and it may not take much to bring this once-popular Motley Fool Stock Advisor selection back to the forefront.
3. First Albany
There are two good reasons to consider this regional securities firm. Unfortunately, neither of the reasons involve First Albany's income statement; the company has posted a loss during five of the past seven quarters.
However, sector consolidation has been a big driver in this market. Larger companies keep gobbling up the smaller players at respectable premiums. As an investment banker with an institutional bent and a recognized brand built on its growth-stock conferences, First Albany's time to dance may not be long. The other reason to get excited about First Albany is that it was an early investor in Rule Breakers pick iRobot
After selling off some shares in the iRobot IPO afew months ago, First Albany and its appendages own 1.35 million shares (a little more than 1.2 million for First Albany itself). With iRobot trading at roughly $35 a pop, that breaks out to roughly $3 for each of the 14.8 million First Albany shares outstanding. That's half the market cap right there. Yes, the company's cost basis is dirt cheap on the iRobot shares, so cashing out would result in a tax hit, but other gems might lie in First Albany's extensive portfolio. More IPOs could further fatten up the company. A year ago, it suspended its nickel-per-share quarterly dividend, but if First Albany regains its profitability and reinstates the payout, it would be a tempting 3.3% yield for income investors.
4. Home Solutions of America
The housing boom was great for Home Solutions; it rang up generous sums for its specialty interior services. The company's fire and water restoration subsidiary was also busy after a pair of active hurricane seasons. So where do we go from here? Higher, perhaps. Housing interiors still need to be updated, and storm watchers don't expect the frenetic pace of windstorms to go away anytime soon.
The only national analyst putting out public estimates expects earnings to rise by 69% to hit $0.44 a share on an 85% spike in revenue. The analyst isn't going out on much of a limb, since the targets are smack dab in the middle of the company's own 2006 guidance that was provided last month.
Home Solutions isn't perfect. The company was recently called out by the American Stock Exchange over the issuance of stock that may not be in compliance with the exchange. It also upset its investors by issuing a private placement back in November at a significant discount to the prevailing market price. Yet the stock is now trading for less than even the shares printed out for the private placement. Home Solutions is growing quickly but fetching just 11 times this year's projected profitability.
5. Sirius Satellite Radio
The arrival of Howard Stern on Sirius three weeks ago had the likely effect on the once-buoyant shares of the satellite radio upstart -- speculators sold on the reality. The shares had more than doubled since his deal was first announced in October of 2004, so it was only natural to see the stock take a breather -- especially since rival XM Satellite Radio
But that momentum shifted this past quarter, as Sirius signed up more new subscribers than XM for the first time ever. Either way, satellite radio is a booming industry with more than 9 million subscribers tuning in to either XM or Sirius. Terrestrial radio may never be the same, and despite what many see as lofty valuations, the potential for these two fast-growing companies is substantial. Yes, one of the two even made the cut as a Rule Breakers recommendation a few months ago. That's certainly a good place to be; the average newsletter selection has risen by 32%, compared to a 7% uptick in the market average.
Opportunities are everywhere in the wide and wild universe of low-priced stocks. Come back on Thursday for the other five picks for 2006.
Until then, if you're interested in learning more about the five stocks for less than $10 that have been recommended to Motley Fool Rule Breakers subscribers, check it out for free as part of a 30-day trial subscription.
Longtime Fool contributor Rick Munarriz really does enjoy panning for gold in unfiltered waters. He does not own shares in any of the companies mentioned in this story. TiVo is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy . Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.