Back in 2001, I began my "10 Under $10" series to look at some of the market's inexpensive stocks. And earlier this week, I wrote about five more stocks that meet the low-price threshold. Although there's no way to know whether the fifth time will be the charm, all four of my previous annual installments of 10 recommended stocks have beaten the market.
No question, these are risky stocks. Companies don't trade in the single digits by accident. Don't just park your due diligence at the door or accept these picks as gospel. Kick the tires. Look under the hood.
With that said, I now conclude my 2006 edition with five more stocks that will run you less than a Hamilton.
(Note: The stock prices listed were accurate as of market close Wednesday.)
Two years ago, iVillage achieved the one milestone that has separated the wheat from the chaff on this side of the dot-com bubble -- profitability. Since then, this stock has ended up in the black in six of the past eight quarters.
Content is king, or, in this case, queen, since iVillage reigns as the self-appointed "Internet for Women." Niche audiences are a valuable commodity in the growing world of paid search, and iVillage has plenty of audience to go around -- it generates nearly 400 million page views a month. Beyond its namesake site, iVillage also watches over Astrology.com, GardenWeb.com, and the teen-female oriented gURL.com. Though iVillage will do just fine on its own, I'm sure it wouldn't object to a suitor at the right premium.
While iVillage is single and not necessarily looking, MIVA is hot on the dating circuit. Last month, the online contextual marketer contracted with Deutsche Bank to analyze strategic alternatives. That's not the kind of fiscal surrender I like to see in a stock, but I can excuse it somewhat. MIVA and I go way back. I used to own a few shares when it was FindWhat.com. At the time, it was the second company to turn a profit in the paid-search space, behind pioneer Overture.
Things started to come undone in 2004 for MIVA. Despite making a bold entry into Europe with its eSpotting acquisition and launching the "Pay-Per-Call" initiative that larger rivals are now copying, MIVA failed its investors. The stock shed a whopping 72% of its value last year, with red ink and questionable sponsors roughing up the company's income statement and reputation, accordingly.
So why is a company with all of that baggage on this list? Well, MIVA wouldn't be in the single digits if it weren't for all of the heavy Samsonite, and even so, it will still close out 2005 with a profit and does sport a cash-rich balance sheet.
If MIVA chooses to stay independent, it will have to work on improving its cost structure and growing the top line. That will be challenging, especially since going it alone would also indicate that there's a lack of interested buyers at the right price.
Homestore is in the process of climbing out of the muck. Having turned a profit over the past three quarters, the online real estate destination has watched its shares more than triple since bottoming out in April.
How can it be that a company with a real estate bent is thriving now, instead of when home prices were booming? Easy. Back then, real estate agents didn't really need to lean on Homestore's promotional expertise. Houses sold themselves. But now that we're entering a more trying period, some houses are spending months on the market -- instead of days or weeks -- and that's an open-house invitation to Homestore's suite of offerings.
I remember when TheStreet.com was trading for less than the cash on its balance sheet. Those were pretty dark times for online financial sites; technology stocks cratered going into the new millennium. Things have turned around since then, thankfully. Investors came back. They always do. But with that resurgence came new models that made financial entities like The Street consistently profitable.
But as with many of today's picks, The Street has turned the corner. It has been profitable for five straight quarters on a continuing-operations basis. The revival of online advertising has helped beef up the company's free content offerings, while newsletter and premium service subscriptions now account for 70% of the company's revenue base. Even though I hammered Jim Cramer last month, at this point I would rather bet on him than against him. Someone . anyone . hit that "bull stampede" sound effect button.
5. Health Grades
If you've ever found yourself hungry for information on a certain hospital, Health Grades may be your answer. The company puts out a graded list, on which it ranks hospitals and their various departments, as well as individual physicians. It provides overviews to consumers for free, while it charges the health-care industry for its more comprehensive reports and services.
Health Grades has guided investors to expect 2005 earnings to come in on the high end of its original $0.10 to $0.13 per-share range, with top-line growth clocking in at slightly below 45%. It also anticipates that 2006 revenues will climb 40% higher on hearty operating margins of 25%.
That translates into roughly $7.3 million in operating profits on slightly less than $30 million in revenue this year. Based on 35 million shares outstanding, that prices the company at less than 30 times forward operating profits. That may not seem like much of a bargain, but it's certainly reasonable for a company growing so quickly.
One final warning
Along with the five stocks that I singled out on Tuesday, I believe in the prospects of these low-priced companies. They're growing, and most of them are profitable. But don't just dive in because of a few words and numbers I've strung together. Learn more about these companies yourself.
Then, once you have mulled them over, don't wait another year for me to come back with more. Take your portfolio seriously enough to make the investment to join me as part of the Motley Fool Rule Breakers newsletter service. You'll get monthly growth stock recommendations, as well as access to a vibrant community of like-minded investors.
I'm proud to be a Rule Breaker. And I'm guessing that you wouldn't have been reading about low-priced stocks if you didn't have a little Rule Breaker in you.
Come along. Let's buck the trend together.
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. 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.