As the stock market hit dizzying heights this year, many investors asked whether there still were bargains to be found. Stock-picking expert Hilary Kramer says that not only are there bargains, but some of them trade for less than $10 a share—often because their potential has not been realized by investors or they fell from grace and may be ready to rebound.
Here’s why she finds her 10 favorites under $10 so attractive now…
When a company’s stock trades for less than $10, many investment firms and mutual funds either sell their shares or ignore the company. But not all of these companies are headed for disaster. In fact, some have healthy balance sheets, proven business models and surprising growth prospects. Many of the low-priced stocks that I buy eventually gain enough momentum to rise above the $10-per-share mark. Once that happens, large institutions may jump in and start buying, helping to push up the price even more.
Because these stocks can be volatile, they should comprise only a small part of your portfolio. The best under-$10 stocks fall into three categories…
These companies are in a declining industry or face larger, dominant competitors. The truth is that they don’t need to become fast-growing juggernauts or Wall Street media darlings to trigger substantial gains in their stock prices. They just have to produce growth that exceeds analyst expectations. My favorites now…
Crown Media Holdings (CRWN) owns the cable networks Hallmark Movie Channel and Hallmark Channel, which offer family-oriented shows, including a new Marie Osmond talk show. It’s a solid business with revenue that increased by 8% in 2012. The channels are making a push into original programs, including 33 original movies in 2013 and 50 next year.
Fortegra Financial (FRF) helps major insurers maximize revenues through add-on services such as roadside-¬assistance coverage and payment-protection plans that help customers pay off their debts in case of disability or death. Although Fortegra dates back to the 1970s, it didn’t sell shares to the public until 2010 and is not widely known outside the southern US. But revenue-enhancement services are one of the fastest-growing areas of the insurance industry.
Newpark Resources (NR) provides products and services for thousands of oil well rigs and high-tech drilling projects around the world. Its proprietary drilling fluids are essential for the hydraulic fracking process that extracts oil and gas from deep shale rock.
ZixCorp (ZIXI) provides e-mail encryption and data-leak protection services to hospitals, banks and government institutions. The small company’s stock price plummeted below $1 per share in the last recession. But in the past few years, protecting e-mail against data breaches has turned into a major priority for many companies. ZixCorp’s technology is easier to use and more comprehensive than that of its competitors.
These companies suffered serious setbacks resulting from management mistakes or drop-offs in revenue that sent investors fleeing and stock prices falling. But those negative headlines are old news. The companies have made great progress cleaning up their problems and resurrecting their businesses. My favorites now…
Boise Inc. (BZ) is a leading manufacturer of office-paper products. Its stock was devastated in the last recession not just because of plunging demand for office-paper products amid economic weakness but also because of the widespread shift to paperless offices in the computer age. The company is reinventing itself as a major producer of protective cardboard packaging, a fast-growing segment of the paper market that benefits from increased consumer and commercial shipping.
Destination XL Group (DXLG) is the nation’s leading big-and-tall men’s retailer, with more than 400 stores. The company, formerly called Casual Male Retail Group, was crushed in the last recession as revenue evaporated and the stock lost 90% of its value. Since then, it has made several smart moves to tap into the trend of expanding waistlines. These include marketing to female shoppers (who often buy clothes for their spouses) and offering more designer brands.
Wilshire Bancorp (WIBC) is a regional bank focused on commercial real estate loans for large Korean¬American communities. In 2011, the stock dropped by more than 50% when an internal investigation found lax management oversight and inaccuracies in loan underwriting. A new CEO has restored strong quality controls in the loan-making process…strengthened its balance sheet…and repaid all its federal TARP bailout loans.
All of the under-$10 stocks I own are, in my opinion, cheaply priced, but this category is reserved for deep bargains—companies with price-to-book values of about one or less. What that means is that if you sold off just the basic, tangible assets of the company—equipment, cash, property, etc.—it would be worth more than the total market value of the company as determined by its stock price. Although there is more risk involved, the largest gains in my career have come from this type of stock. My favorites now…
CBIZ (CBZ) is an outsourcing firm that provides billing and coding support for medical and health companies, as well as accounting, payroll and COBRA health insurance administration services for hundreds of businesses. This attractive business model requires very little investment capital and generates enormous cash flow. But continued high unemployment has hurt the outsourcing industry. The firm, whose stock has lost ground every year since 2008, has been making aggressive acquisitions of weaker competitors, positioning it for better times.
Photronics (PLAB) makes photo-masks—glass plates that are used to design integrated electronic circuits. The high-resolution images on smartphones and TVs wouldn’t be possible without photomasks. An oversupply and a downturn in the semiconductor and microcircuits industry have led the stock to lose one-third of its value in five years. But Photronics has remained profitable, while many competitors have gone out of business.
RTI Biologics (RTIX) is the leading provider of human and animal tissue (bones, tendons, skin, etc.) used in orthopedic, dental and spinal surgeries. Transplanted tissue from cadavers often is better than synthetic and metal implants. RTI, which sells to hospitals and medical practices in 30 countries, has struggled from the effects of a massive 2008 merger with a German company, pushing its stock 60% below its five-year high. But it has a strong balance sheet, dominates its niche and can benefit from the escalating number of surgeries in sports medicine.
