Stocks You Might Like, at Less than $10 a Share
Posted: June 27, 2017
Some people love to speculate in stocks that sell for less than $10 a share. They like the volatility of low-priced stocks, and they intuitively feel that these shares have “more room to rise” than higher-priced stocks.
Some institutional investors won’t buy a stock priced in single digits. That means there is a possibility for a low-priced stock to gain a wider audience once it cracks the $10 barrier.
To please the single-digit crowd, once a year I publish a list of stocks I like that sell for less than $10 a share.
Eleven years ago, shares in Office Depot Inc. (ODP) sold for more than $40 a share. Today they are priced at about $5.60.
What happened? First Office Depot was trampled by competitor Staples Inc., which is now itself troubled. Then all brick-and-mortar stationery stores were wounded by competition from online vendors, notably Amazon.com.
On top of all that, while the paperless office is a dream, the less-paper office is a reality.
Why should one care about Office Depot? Every stock has a price at which it is attractive. These shares are at 5 times recent earnings, and 0.27 times revenue. And there is still takeover potential, even though a federal court blocked an attempted takeover by Staples 13 months ago.
Sibanye Gold Ltd. (SBGL) is a South African gold mining company. It trades at a little over $5 a share, down from a spike to $12 about a year ago. The stock sells for less than book value (corporate net worth per share).
I think having a little gold in one’s portfolio is a good idea now. Gold tends to do will during flare-ups of international turmoil, and holds its own pretty well when inflation heats up. Either or both of those events seem fairly likely to me in the next two years.
NL Industries Inc. (NL), based in Dallas, Texas, is best known as a producer of titanium dioxide pigments. It has diversified into locks, components for boats and cabinetry, and other ventures.
Only two brokerage houses currently follow NL, and both rate it a “sell.” Yet it seems to me that fundamentals at NL are improving.
After posting losses in 2013 and 2015, the company earned about 30 cents a share last year, and is expected to show about 80 cents a share in profits this year. And NL has very little debt.
With headquarters in Taiwan, Advanced Semiconductor Engineering Inc. (ASX) makes semiconductor packaging and does semiconductor testing. It gets about half its revenue from the U.S., a third from Asia and the rest from Europe.
Revenue growth has hit the wall lately, but has averaged about 12% a year historically. The company’s earnings this year are expected to fall about 10% short of the 2014 peak, which was $3.07 a share. But analysts expect ASX to break that record in 2018.
Clean Energy Fuels
An interesting speculation is Clean Energy Fuels Corp. (CLNE), which builds and operates natural-gas filling stations.
The stock has waxed and waned with energy prices (higher oil prices are good for it, lower oil prices bad), with news on its business alliances, and with contract signings (for example, with Los Angeles to service a fleet of buses).
The stock traded above $20 in parts of 2010 and 2012, but today fetches a mere $2.49 or so per share. The company has been posting losses, but the losses are narrowing. The stock sells for 0.7 times book value and 0.8 times revenue.
This is the 12th column I’ve written recommending stocks under $10 a share. The average 12-month return on my picks has been a loss of 0.74%, compared to an average gain of 9.37% for the Standard & Poor’s 500 Index. Only three of my 11 columns on this subject have beaten the index. Six have been profitable.
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
Despite disappointing results to date, I will continue this series because I think there is genuine investor interest in this subject. And I publish the results because if I don’t, no one will believe me when I publish great results on other series of articles.
Disclosure: I have no positions in the stocks discussed in today’s column, for myself or clients.