Anyone familiar with my annual Stocks Under $10 series, which dates all the way back to 2001, knows that I don't have a problem with low-priced stocks. They're risky. They're either obscure or deeply unloved. They're not for weak hands.
However, finding the right ones can be lucrative. We can't confuse "low-priced" with "cheap," of course. Many of these single-digit traders are on a one-way trip to Nil City. The keys for the low-priced stock investor are to recognize why the stock is trading at a low price and visualize the catalysts that will catapult it higher.
In an effort to mix things up, I'm going to look at eight intriguing stocks that happen to be trading for less than $8 apiece. It goes without saying that you should do a little homework on your end before considering any of these risky critters for your own portfolio.
I was blown away by the media retailer's quarterly performance last week. Beyond a dip in DVD rentals and CD sales, Hastings was strong everywhere else. The lone analyst following the company was similarly impressed, raising this fiscal year's profit-per-share target from $0.61 to $0.73.
There are a lot of things to like here:
- Just one major analyst is following the company.
- Hastings earned $0.17 per share during a seasonally sleepy retail quarter.
- Based on the revised estimate, Hastings is trading at just 10 times projected earnings.
Consumer Portfolio Services
When you hear that a company specializes in subprime auto loans, your initial reaction is probably to fishtail the other way. Subprime? Blech! Then you realize we're talking about cars. Automobiles haven't been bid up to unjustifiable prices like real estate. Borrowers aren't teasing buyers with exotic loans, bending credit scores to make a car deal stick. In other words, CPS loans money to a risky lot, but it's pretty much business as usual these days. Delinquencies will run high, but so will yields.
The industry isn't entirely immune from the subprime mortgage meltdown. Strapped consumers will default on more than their homes. Lending standards will tighten all over. However, autos and homes aren't joined at the hip. If you think Hastings is packing a cheap P/E, try CPS on for size: The stock is trading at just 8.5 times this year's target and 6.1 times next year's bottom-line estimate.
If content is king, CNET's a brainy ruler. The company behind popular Internet websites like GameSpot, TV.com, and Webshots isn't getting a whole lot of regal love, though. Maybe it's the sluggish growth, as seen last quarter. Maybe it's the proliferation of smaller tech blogs that are eating into CNET's tech news reporting strength. Still, we live in acquisitive times. You can't draw 137 million unique monthly visitors the way CNET does across its network of sites without generating interest from the search-engine giants.
Great company. Terrible stock. Those are the four words that would best describe Jamba Juice parent Jamba since it began trading last year. Spotty profitability and challenging comps (which fell by 3.3% last quarter) are to blame, but I dig the Jamba Juice concept too much to give up on the stock as it hits fresh all-time lows.
It seemed as if insurance-industry lead generator InsWeb was going to be yet another sad dot-com that would burn away its greenery before it became a viable business model. Then it turned a profit during this year's first quarter. Then it did it again. Couple the consistent net income production with a cash-rich balance sheet mattress, and you have a company taking positive steps with downside support.
Competition is everywhere these days for the digital video recorder (DVR) pioneer. First it was retail knock-offs. Then it was satellite television and cable programmers putting out their own DVR solutions. Now, even the video game industry is getting into the mix. Thankfully, TiVo is blessed with patents on many of the medium's advanced features. A lack of profitability is keeping the shares in check, but TiVo keeps growing the number of its company-owned subscribers.
Big screens haven't led to big gains at IMAX. Accounting blunders and a botched sale have rained on the company's parade. Last quarter's results weren't spectacular. However, exhibitors worldwide are turning to IMAX as a way to milk more money out of their meandering multiplexes. With movie studios also turning to IMAX with amped-up versions of their theatrical releases, the entertainment industry gets IMAX. Hopefully investors will get it, too.
I've been pretty critical of the consumer electronics retailer in recent years. Clearly, it's a company in disarray. Over the past two years, Sharper Image has suffered through precipitous slides in comps and executive shuffles. Even its Internet sales have been free-falling. I'm not banking on an immediate turnaround here, but the company's desperate push for perpetual reinvention makes for a compelling gamble that the chain will get it right eventually.
Eight for the road
Yes, a lot of these stocks aren't for the squeamish. Some aren't currently profitable. Some aren't currently growing. All are currently unloved. However, that's usually what you get when you pan for gold in these shallow waters.
Two of the stocks -- CNET and IMAX -- are also Motley Fool Rule Breakers newsletter recommendations. They were in the single digits when I picked them, and they still haven't perfected the secret sauce necessary to graduate into the double digits like I thought they would when I singled them out in the growth-stock research service.
However, just as many of my original "10 Under $10" stocks have gone on to score healthy gains over the years. I believe that these eight stocks have more to offer than the other neglected stocks wallowing in pocket-change prices.
The key to superior investing is to find great stocks early. It's at the heart of the Rule Breakers newsletter, a service you can check out for free through what's left of the summer with a 30-day trial subscription. Sometimes, finding the right low-priced stocks can be cheap, too.
Consumer Portfolio Services and Sharper Image are Hidden Gems Pay Dirt recommendations.
Longtime Fool contributor Rick Munarriz may not be able to skate a perfect figure eight, but he does know that eight bucks can go a long way. He owns shares of Jamba and TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.