Stocks for Less Than $10 A Share
Posted: June 29, 2016
Theoretically, the absolute price of a stock tells you nothing.
Psychologically, however the stock price can send a message. Stocks under $10 are considered risky, racy and volatile. Yet they have a certain trailer-park charm. If they start having success, they can be “discovered” by institutional investors, producing a big gain.
For those investors who like the extra dose of action that often comes with a low-priced stock, here are five candidates that I think could provide a lively ride and some good gains.
Pier 1
A strong dollar favors importers, and I expect dollar strength to persist in light of Britain’s vote to leave the European Union. That makes me favor Pier 1 (PIR), whose stock sells for less than $6, down from more than $20 a few years ago.
The company sells a variety of home furnishings and knickknacks, mostly imported from Asia. I don’t regard it as well-run, but I do think it is timely, both because of the dollar’s strength and because I expect an increase in household formations over the next year or two.
Hampton Roads
It’s a tough time for banks in the United States. Interest rates are low, making it hard for them to earn money on the spread between the rate they pay depositors and the rate they charge on loans.
I am in the camp that the Federal Reserve should begin to raise interest rates to more normal levels, and I believe the Fed will do so, albeit slowly. That could help bank stocks get out of the basement.
Hampton Roads Bankshares Inc. (HMPR) is a small bank based in Virginia Beach, Va., with about 34 branch offices. Though its stock price has languished in recent years, I see glimmerings of improvement.
At about $1.70 a share, Hampton Roads stock sells for less than book value (corporate net worth per share) and only three times recent earnings.
New Home
The New Home Co. (NWHM), based in Aliso Viejo, Calif., is a home builder serving California markets including Los Angeles and San Francisco. It has been growing rapidly, and analysts expect earnings growth to continue next year.
New Home’s valuations look good to me. Its stock price is 0.4 times revenue, 0.9 times book value, and about 10 times recent earnings. On the negative side, the company has taken on a decent amount of debt to finance its expansion. If it takes on any more, I will start to worry.
Noble
The price of oil fell from more than $100 a barrel in mid-2014 to a low of about $29 this February. It has rebounded to about $48 but if this is the “new normal” for oil, drilling companies are going to have a difficult time in the next year or two.
Noble Corp. Plc (NE), based in London, England, specializes in offshore drilling and is a major factor in that moribund industry. Its stock fetches less than $9, which is way under book value.
I don’t know what 2016 will bring for Noble (aside from lots of volatility) but I think patient holders will be rewarded over the next three to five years.
Hailiang
Most speculatively, I recommend Hailiang Education Group (HLG), a Chinese company traded here as an American Depositary Receipt, or ADR. Hailiang operates three schools for about 17,000 students in the Zhejiang province on the east coast of China, serving grades K-12.
Profits have tailed off recently, adding to the risk in this stock, which has a market value of only $206 million. The company is debt-free, a quality I like.
Bad record
Beginning in 2001, I’ve written 10 columns on the subject of stocks selling for less than $10. My record to date is somewhere between bad and terrible. Only five of the 10 columns were profitable and only three beat the Standard & Poor’s 500 Index.
The average return has been a loss of 1.8 percent, versus a gain of 8.1 percent for the Standard & Poor’s 500. Many of my other article series have far better records.
Why do I persist with the “Under $10” series? I guess for the same reason basketball hall-of-fame icon Michael Jordan tried to play professional baseball. It seems like an interesting challenge.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t predict future returns.
Disclosure: I own none of the stocks discussed in today’s column, personally or for clients.