5 Stocks Under $10
If you've got ten bucks, I have some stock ideas for you.
I've been singling out attractive opportunities in low-priced stocks since my original "10 Stocks Under $10" column a dozen 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 the 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.
June 14, 2013
March 13, 2009
Sirius XM Radio
*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 571% in four years is pretty remarkable.
Even with Geron crashing as the lone stinker, the other four multibaggers have easily trounced the market by excelling in satellite radio, cosmetics, cars, and Chinese advertising.
Let's go over this month's picks.
Xinyuan Real Estate -- $4.52
Real estate has been bubbling domestically, but that bubble appears to be popping in China.
This would normally result in bad news for Chinese real estate developer Xinyuan, but it's holding up considerably better than even it expected.
Xinyuan delivered better-than-expected quarterly results last month. Revenue slipped 2% to $172.6 million, but that was substantially better than the drop to $135 million that it was targeting. The near-term outlook is also holding up well, as a 12% increase in contract sales of $178 .3 million was also better than its $135 million forecast.
Xinyuan remains very profitable, and investors fearing that Chinese accounting can't be trusted can take heart in its healthy quarterly dividend rate of $0.05 a share. A nickel every three months may not seem like much, but that translates into a reasonable yield of 4.4%.
Himax Technologies -- $5.39
Shares of Himax took a 21% hit last week, but that also provides an opportunistic buying opportunity.
Before delving into last week's dive, let's take a look at the ascent.
Himax shares have more than doubled this year -- even with last week's sell-off -- as investors assess the potential of Himax's display semiconductors in wearable computing. There has been heated speculation that Himax's display chips are at the heart of Google Glass, and teardowns have given bulls and bears enough ammo to make this far from clear.
Obviously, confirmation of Himax as a Google Glass component provider would be great for business, especially if the devices take off. That certainly isn't a given since there has been a fair share of negative reactions to the high-tech specs.
Lost in all of the hype is that Himax is very profitable even without Big G's business. Himax earned $0.30 a share last year, and analysts see a profit of $0.42 a share this year and $0.61 a share come 2014. As far as Himax has gone this year, it's still fetching a forward earnings multiple in the single digits.
Last week's slide was overdone. A large investor moved to unload more than 22 million shares in a secondary offering. It may be seen as a public lack of confidence, but at least it wasn't dilutive. Business and profitability is growing at healthy double-digit clips here.
Galena Biopharma -- $2.10
There is no shortage of money-losing biotechnology stocks trading in the single digits, and they are all very risky.
Galena is not an exception. It has some potentially promising oncology treatments in the advanced stages of clinical trials, but investors know that they are buying into a situation with a high probability of failure. Galena shares are lottery tickets. They will probably not pay off, but if they do, the payout will be big.
Galena's lead candidate is a breast cancer prevention vaccine called NeuVax.
"The chances of an approval seem a long way off," fellow Fool Sean Williams wrote last month, though he did concede that clinical trial results have been encouraging so far.
This will be a volatile investment, and the same stock that more than tripled last year can crash at the first whiff of clinical setback for NeuVax. As a small speculative bet, it makes the cut this month, but only for investors willing to lose it all in a swing for the fences.
Rite Aid -- $3.09
Despite its small share price, Rite Aid is a pretty big deal. It watches over 4,600 drugstores ringing up more than $25 billion in annual sales.
The stock was trading for less than a buck late last year as investors wondered if the leveraged drugstore chain would buckle before mustering its first quarterly profit in years.
A funny thing happened on the way to Rite Aid's demise. The retailer surprised Wall Street with a quarterly profit in its fiscal third quarter that ended in November. It did it again three months later. Rite Aid should post its third consecutive quarterly profit when it reports this Thursday.
Rite Aid isn't perfect. Its balance sheet is still a mess with nearly $6 billion in long-term debt. However, nothing changes a company's ability to lower its financing costs and pay down its debt the way that profitability can.
Rite Aid has come a long way in a few short months, but there's still more room to run if it can continue to surprise the market with strong earnings.
Sirius XM Radio -- $3.27
The satellite radio provider has been a big winner since I singled it out four years ago, but the party doesn't have to end for premium radio after the 16-bagger that it has become in that time.
Shares of Sirius XM have fallen 10% since peaking late last month, and a big reason for the slide is that after months of hype we finally have confirmation of iTunes Radio.
The world's largest consumer tech company making the inevitable dive into the streaming music market is something that investors can't ignore, but Sirius XM has continued to pad its subscriber base with every passing quarter save for a half-year span in 2009 when auto sales were tanking.
The allure of proprietary content and drivers trading in their aging vehicles for new cars with satellite receivers should keep Sirius XM growing regardless of iTunes Radio's success.
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.
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
The article 5 Stocks Under $10 originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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