A global travel agency…a brewer …and a maker of robotic cancer surgery systems. These companies have very little in common except for one thing—their stocks have been trading below $10 per share. With the stock market at or near record highs recently and many individual stocks in nosebleed territory, some of these low-priced stocks stand out as overlooked bargains, according to expert stock picker Hilary Kramer.
Bottom Line Personal asked Kramer how she finds winning low-priced stocks and which ones are her favorites now…
I focus on two categories of low-priced stocks. The first is “undiscovered growth” companies, typically very small—under half-a-billion dollars in stock market value—with the potential to increase their revenues quickly. Most investors have never heard of these companies because they’re in unglamorous or niche industries…are tapping into emerging trends that aren’t fully appreciated…or are overshadowed by larger competitors. Here are my favorite undiscovered growth stocks now…
Accuray (ARAY). This medical technology company makes advanced radiation therapy systems that help doctors treat tumors with less damage to healthy cells. Such systems are very expensive, and hospitals and surgical centers have been slow to adopt them. The company, which is tiny compared with robotic surgery industry leader Intuitive Surgical, still is not profitable, and that’s one reason its stock is 85% below its all-time high. But it has a backlog of more than $400 million in orders, and once more of those systems are in place, I believe recurring revenue from tech support, parts and repair will explode. Recent share price: $4.60.
Century Casinos (CNTY). This company, with its two casino/hotel resorts in the Rocky Mountains, is regarded by many as a marginal player in the industry. But it has a strong balance sheet, as well as the flexibility to move into fast-growing markets that are too small to interest major competitors. Such markets include Eastern Europe and the cash-rich oil-sands region of Alberta, Canada. Century also operates casinos on 13 luxury cruise ships. Recent share price: $7.21.
Evolution Petroleum (EPM). Many energy stocks are unlikely to go much higher anytime soon now that oil prices seem to have hit a ceiling. But I think this Houston-based oil-and-gas company is an exception. It acquires the rights cheaply to wells that have been depleted using traditional extraction methods and then uses proprietary technology to extract more. The stock nearly doubled in the past year, but it could move much higher as the company extends its technology to more wells in the US and abroad. Recent share price: $7.95.
FNCB Bancorp (FNCB). Small, profitable banks are likely to be stock market leaders over the next few years. Reason: They haven’t gotten as much attention from investors as giant, well-known banks, but they benefit from the same positive trends including the potential rollback in business regulations and corporate taxes proposed by the Trump administration and higher interest rates. This Pennsylvania community bank has attractive growth prospects as it expands in the state, and I think it could be taken over by a larger regional bank at a premium to its current share price. Recent share price: $7.05.
Hudson Technologies (HDSN). Hudson is a refrigerant-services company that serves businesses such as supermarket chains that rely on commercial refrigerators, freezers and large central-air-conditioning systems. Its stock jumped 170% last year on the basis of a multiyear contract with the US Department of Defense that could be worth as much as $400 million. I think the share price can go much higher because revenues have been growing quickly and because the company may attract business from other federal government customers. Recent share price: $6.51.
Patriot National (PN). This outsourcing firm provides insurance carriers with back-end services such as employee-benefits management, claims administration and fraud investigation. The company went public two years ago at an awful time, when growth in the insurance industry was sluggish. But the insurance business is turning around now, and large carriers are spending more on outsourcing. Recent share price: $2.10.
Travelzoo (TZOO). Online travel agencies are a great growth business, providing a fast, cost-effective way to sell billions of dollars worth of unfilled airline seats and hotel rooms at discounts. Travelzoo, which books air-and-hotel travel packages for more than 28 million members in North America, Europe and the Asia-Pacific region, is a reasonably priced way to tap into this industry’s long-term potential. Recent share price: $9.70.
The second category where I look for low-priced stocks is the one I call “fallen angels.” These are well-known medium-sized and large companies with total stock market values ranging from
$5 billion to $100 billion. Their stock prices have plummeted because of setbacks ranging from dramatic changes in their industries to calamitous slowdowns in their markets. But these former highfliers still are profitable, and they have potential earnings catalysts that have been overlooked.
My favorite fallen angels now…
AmBev (ABEV). This Brazilian beverage company is the fifth-largest brewer in the world, with premium-brand beers such as Brahma and Skol. A severe recession coupled with soaring inflation in Brazil, AmBev’s largest market, has hurt earnings and driven the stock price down about 40% below its five-year high. But Brazil will recover, and the company is profiting from the near-monopolies it has in most other Latin American markets. Anheuser-Busch InBev SA/NV, the world’s largest brewer, owns 62% of AmBev, which trades separately. Recent share price: $5.62.
Banco Santander (SAN). Spanish banks have been a disaster since the end of the global recession in 2009 because of Spain’s low interest rates, high unemployment and a lingering real estate downturn. Recently, Banco Santander’s stock was 44% below its five-year high, and the company is closing 13% of its branches in the country. But investors are missing the fact that the bank is a global player that derives nearly half its profits from stronger economies such as the US, the UK and Mexico. Its stock recently offered a very attractive 4.1% yield. Recent share price: $5.78.
Xerox (XRX). More and more offices have reduced the use of paper documents. Xerox, the global leader in photocopiers and printing equipment, responded by expanding into a variety of other industries—and lost focus and floundered. This past January, Xerox, prodded by activist investor Carl Icahn, who owns 10% of the company, spun off its ancillary businesses. Icahn believes that a leaner, focused Xerox can compete more effectively even in an industry in slow decline. I do, too, and I like the generous yield, recently 3.6%. Recent share price: $7.03.