I collaborated with David Neubert to come up with a list of the best stocks under $10, but the first thing he said was, “Most stocks under $10 are ones that have problems.” All of the stocks on his list are speculative. “Just buying stocks with low prices is not a very smart strategy. There is no disadvantage to buying one share of Google for $520 as opposed to 100 shares of stock with a price of $5.20.” It turns out most online brokers charge the same commission regardless of number of shares.
Photo:Thomas Hawk, Creative Commons, Flickr
By definition, stocks under $10 will be in sectors that are struggling, like finance, media and high yield bonds.
One potential finance pick is:
E*TRADE Financial Corporation (ETFC – $3.98) – This financial brokerage firm’s stock got destroyed because of their exposure to sub-prime loans but if someone can get their arms around a troubled mortgage portfolio, it could be a great takeover speculation.
Media picks include:
Sirius Satellite Radio Inc. (SIRI – $2.70) – Sirius is a radio broadcasting company that is currently undervalued but might do well in the upcoming merger with XM Satellite Radio (XMSR).
Sinclair Broadcast Group, Inc. (SBGI – $8.98) – The television broadcasting company is another stock in a cheap sector that could ultimately rally with the FCC’s 2009 digital broadcasting mandate, as well with the advertising boon that comes with an election and Olympic year.
TheStreet.com, Inc. (TSCM – $7.90) – This growing financial media company launched the personal finance site MainStreet.com in March and renewed Jim Cramer’s contract for three more years in April. Merriman Curhan Ford analyst Richard Fetyko lowered his valuation of the company last month but still contends that “the stock appears cheap relative to growth and long-term opportunity.”
One promising manufacturer is:
Ballantyne of Omaha Inc. (BTN – $4.72) – A theatre equipment, lighting systems, and restaurant products company that’s a good bet if you believe in the future of digital projectors Additionally, it has a small market cap and trades thin volumes.
Given the underperformance in the credit market since last summer, there’s an opportunity for a higher return in high-yield bonds. The shares of the following closed-end funds trade at a significant discount to their Net Asset Value (NAV), or value of all underlying assets, and all are trading cheaper than their historical norms. Note that some of these funds are leveraged, which means they can be susceptible to higher price swings than regular portfolio high yield bonds:
Dreyfus High Yield Strategies Fund (DHY – $4.27) – Trading at a 12.09% discount to NAV with an 11.6% yield.
Morgan Stanley High Yield Fund, Inc (MSY – $5.63) – Trading at a 12.91% discount to NAV with a 7.6% yield.
High Yield Plus Fund, Inc (HYP – $3.08) – Trading at a 13.11% discount to NAV with a 7.9% yield.
Morgan Stanley Emerging Markets Debt Fund Inc. (MSD – $9.71) – Trading at a 13.66% discount to NAV with a 6.4% yield.
Credit Suisse Asset Management Income Fund, Inc (CIK – $3.59) – Trading at an 11.34% discount to NAV with a 10.5% yield.
Disclosure: David Neubert owns all these stocks except Sinclair Broadcast Group and TheStreet.com.