After more than doubling in the past six years, do US stock markets still offer any screaming bargains? Yes!, says stock-picking expert Hilary Kramer. She says some of the best bargains are priced around $10 or less per share. The stocks are so cheap because many investors don’t recognize how much profit potential the companies have…don’t realize that they are managing to overcome setbacks that pushed their stock prices down so low…and/or fear that the stocks are just too risky. Here’s how Kramer finds the best bargains and what her favorites are now, including some foreign stocks that are traded on US exchanges…
Despite the large amounts of financial information available, investors often don’t realize the potential that some companies have for increased revenue and profits. This is especially true of companies with low-priced stocks, which tend to draw less interest from analysts. The companies often operate in industries that aren’t very exciting or in market niches where the trend toward strong growth is not yet apparent. I look for companies that can achieve 15% annual growth in revenue over the next few years. Examples…
• MGIC Investment Corp. (MTG) is one of the leading private mortgage insurers in the US, issuing policies covering more than $165 billion in loans. Mortgage insurance enables borrowers to buy homes with low down payments by protecting lenders against losses in the event of defaults by borrowers. Many mortgage insurers, including MGIC, were crushed by the real estate meltdown that began in 2007. MGIC has slowly turned around its fortunes as the US housing market has rebounded. Last year, the company reported its first annual profit in eight years. As one of the industry’s few survivors, MGIC has been able to focus on writing policies for buyers with higher-quality credit. Recent share price: $10.72.
• Lionbridge Technologies (LIOX), based in Waltham, Massachusetts, provides translation services in more than 100 languages for companies and institutions around the world. Clients include Microsoft, Google, Pfizer, Samsung and the US Department of Homeland Security. Lionbridge’s growth has been inconsistent over the past few years, held back by the weak global economy. But the company is finding ways to grow, including aggressively acquiring rival translation services. One of Lionbridge’s fastest-growing divisions offers a sophisticated Internet translation service in which specialists tailor clients’ online marketing and advertising programs to appeal to different cultures. That’s in contrast to standard services that use automated software and that often are wildly inaccurate. Recent share price: $5.72.
For these formerly thriving companies, various misfortunes and declining revenues have dragged down stock prices. In some cases, the problems were caused by management gaffes…in others, their industries were in flux. These companies are addressing their problems effectively, and they have begun to resuscitate their businesses even though many investors still don’t have faith in them. Examples…
• Cincinnati Bell (CBB) is a telecommunications company operating in the Cincinnati and Dayton metropolitan areas. Wall Street has written off the 142-year-old firm as part of a dying breed because it provides traditional land-based telephone lines, a market that is eroding because of competition from cable and wireless providers. What investors have overlooked is that for the past several years, the company has made a dramatic bet, selling off its data-storage and wireless-phone divisions in order to fund its transformation into a fiber-optic-cable communications provider. Fiber-optic cable transmits signals through thin strands of glass. It can offer homes and small businesses high-speed Internet that is 100 times faster than conventional copper cable lines. This transformation is starting to pay off. Cincinnati Bell’s fiber-related business had $310 million in sales last year, about one-third of total sales. The company’s fiber-optic network currently is available in only about 40% of its potential market, but that should double by the end of 2016. Recent share price: $3.59.
• Genworth Financial (GNW) is a top US provider of long-term-care insurance, which is meant to protect customers against the high costs of nursing home or home-health-aide care. The stock has dropped 55% over the past year. Reason: The unexpected surge in Alzheimer’s and dementia cases among policyholders who bought coverage a decade or two ago left the company with a staggering $1.2 billion loss last year. But Genworth’s management acted quickly to shore up cash reserves to cover future losses on these policies. The company has won approval for rate hikes on premiums for customers in 47 states, and it has tightened terms on new policies, limiting benefits to no more than three to five years. That should produce strong returns in the future. Recent share price: $7.96.
These are struggling companies that are so out-of-favor with investors that their price-to-book ratios are less than one. That means the physical assets of the business including cash, equipment, inventory and properties are worth more than the market value of the company’s outstanding stock shares. Expectations for these companies are so low now that any bit of positive news could lift their share prices. This is the riskiest type of low-priced stock that I own, but stocks like these have been my biggest gainers over the years. Examples…
• First Bancorp (FBP) is the second-largest bank in Puerto Rico, operating nearly 150 branches and serving 600,000 customers in Puerto Rico, the Virgin Islands and southern Florida. Investors are rightfully wary of any company based in Puerto Rico, given the ongoing recession there and the island’s struggle to avoid defaulting on its municipal debt. But First Bancorp is financially healthy and received a recent windfall when it took over the deposits and branches of its failed rival Doral Bank. Housing prices have stabilized in Puerto Rico, and the government has taken tough measures to reform its public pension plan, decrease expenses and jump-start the economy. Any improvement in real estate values and business conditions will drive up the bank’s share price, which is nearly 90% below its five-year high. Recent share price: $6.37.
• Silver Standard Resources (SSRI) owns large silver mines in Argentina, Mexico and Peru, producing more than eight million ounces of silver annually. The stock lost nearly two-thirds of its value over the past three years as precious-metal prices plunged. But even if silver prices continue to drop, the company has sufficient strength to maintain its operations. And I believe demand for silver actually will start to rise in 2015 as the global economy improves. Unlike gold, which tends to rise and fall on investor sentiment and speculation, more than half of the demand for silver comes from industrial needs such as the manufacturing of batteries and solar panels. Recent share price: $5.43.
