3 bargain stocks for under $10
Here are a few cheap picks that look promising.
In this frothy stock market, it’s easy to find stocks that continue to move to new highs.
But for investors looking for picks that are affordable at less than $10 a share, it’s getting increasingly difficult to find cheap stocks worth owning.
Sure, there are some battered players out there on the cheap like J.C. Penney (JCP) ... but buying a cheap stock like JCP that is circling the drain is not the same as buying a low-priced company at a bargain.
If you’re looking for cheap stocks to buy now for under $10, here’s a list of three players to consider in the months ahead.
Burger chain Wendy’s (WEN) has soared almost 60% so far in 2012, but remains under $10 a share and is still a decent buy for investors looking at low-priced options right now.
Wendy’s has had a rough go of things in recent years, but after the 2011 sale of its Arby’s restaurants to a private equity group the burger chain has been able to stay focused and worry about efficiency and modest international investment. Wendy’s re-entered Japan in 2012 and that same year managed to topple Burger King (BKW) as the No. 2 burger chain in America behind McDonald’s (MCD).
Granted, Wendy’s profits are thin with earnings forecasted to tally just 23 cents for this entire fiscal year. Furthermore, a dividend of 5 cents quarterly means that WEN is clearly burning a good chunk of its cash in dividends.
However, as the quick service space continues to evolve as consumers demand healthier options and as cash for dining out remains tough to come by, Wendy’s is well positioned for success going forward.
Sirius XM Radio
Satellite provider Sirius XM Radio (SIRI) was in a tough spot last year as terrestrial radio remained entrenched and streaming Internet radio from companies like Pandora Media (P) and continued to gain momentum. But don't count out Sirius XM.
SIRI has launched a streaming music service of its own, and its earnings have been simply stellar on the growth front. Sirius just that it added half a million new subscribers in Q3, and raised its full-year subscriber growth forecast. Revenue was also up 11% to a new quarterly record.
There is a risk to the bottom line, of course, and Sirius did see its profits decline. However, the company is looking to boost its subscription costs by 50 cents -- a tiny amount that may not cause much disruption with subscribers but prop up earnings nicely -- and that could lift SIRI higher.
A lack of consistent profitability remains a weight on shares, but it's important to understand that revenue continues to climb and this stock is far from a fad.
It's also important to remember that a big driver of growth (pardon the pun) is the sale of pre-packaged Sirius XM access in many new vehicles. Incremental improvement in the auto industry would mean a boost in the number of Sirius subscribers.
As it rolls back a bit from four-year highs on profit concerns, Sirius XM stock could be a nice buy on a dip before revenue and subscriber growth moves over into the profit category soon.
I am increasingly bullish on materials stocks, despite the poor performance of the sector lately. The bottom line is that big efficiencies made over the last few years married with the prospect of a weaker dollar sparking a bit of inflation and hopefully stronger manufacturing growth in Europe and China.
Gerdau (GGB) is one of the best ways to play this trend if you believe in a commodities shift. The Brazilian steel company trades for a forward P/E of about 5, and a price/sales of just a bit more than 0.7. That’s an incredible valuation.
The company also pays a decent and sustainable 2% dividend.
There are obviously big risks for materials stocks like GGB if China’s recent stabilization crumbles, or if the U.S. dollar moves significantly higher on central bank tightening and places a hard ceiling on commodity prices.
But the time may be right to rotate into commodities after a frothy run in other sectors and as investors look to move on to the next opportunity in 2014.
For two more bargain stocks, click here.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” As of this writing, he did not own a position in any of the stocks named here.
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There is a big difference between earnings and cash flow. Wendy's has had around 40 cents/share cash flow for the past four plus years, so the dividend payout is less than 60%. It's long-term debt is approximately half of what it was in 2009. However, it's return on equity is less than 1%, indicating it's having trouble putting new money to work.
The P/E is currently 38 for 2013 expected earnings and 31 for 2014 projected earnings. The expert consensus is that it will grow 16% per year for the next five years. That would put the P/E at 18 in five years if the stock price doesn't rise.
If Wendy's can pull of a 16% annual growth rate for five years, what will it do after that? I don't see 16% or a justification for a P/E of 18, let alone 38.
I like Wendy's but the price is too high. Just because it's below 10% doesn't make it a bargain.
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