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Low-priced stocks can offer risks but also plenty of potential upside when bought at the right time. Many fund managers and other investors avoid stocks that trade below $5 per share because of policy restrictions set by the fund or because of an often misguided perception that stocks that trade at this level are too risky. This can create an opportunity for savvy investors to capitalize on, plus the risks of buying low-priced stocks can be mitigated by investing in companies that are profitable and ones that have solid balance sheets. While there are plenty of low quality companies that have share prices below $5 and little financial strength, there are many great companies that are worth investing in, that also trade at this level. With this in mind, here are two low-priced stocks that appear to be too cheap to ignore. These companies also offer solid balance sheets and could even be takeover targets:

Abraxas Petroleum Corporation (NASDAQ:AXAS) shares appear very undervalued for a number of reasons. This oil sector stock has seen some solid rallies, but the full potential value remains to be seen and some analysts and investors think this stock could be worth about double the current price. Since the shares are now at the low end of the recent trading range, there appears to be a solid buying opportunity for investors. Here are a number of points and potential upside catalysts to consider:

1. The production outlook is promising: For 2013, Abraxas expects production volumes to average 4,900-5,200 of barrels of oil per day or "BOEPD" (on a pre-asset sale basis). This is equivalent to production growth of 21% to 28% and higher volumes should lead to increased profits. Abraxas also has plans to boost shareholder value with asset sales, it states:

"The company is also actively marketing numerous assets which it deems non-core, assets with a low working interest or assets with little associated production that are not reflected in this guidance."

2. The Clinton Group owns a significant stake in Abraxas, and it believes the sum-of-the-parts and cash flow valuation analyses indicates a fair value of about $4.35 per share. It sent a letter to Abraxas management in an effort to encourage more actions to unlock shareholder value. The letter stated:

"outright sales of non-core acreage should yield the Company nearly $160 million, in addition to the $22 million in proceeds that are expected from the Nordheim and Alberta Basin deals already announced."

Because Abraxas has a current market capitalization of about $200 million, potential non-core asset sales estimated at $182 million implies that the core assets are being given away nearly for free. Here is the breakdown of assets listed in the letter from the Clinton Group:

1. Powder River Basin with an estimated 17,800 acres, valued at $44,500,000.

2. Western Alberta with an estimated 6,880 acres, valued at $17,200,000.

3. Permian Basin (Reeves) with an estimated 2,900 acres, valued at $15,950,000.

4. Permian Basin (Other) with an estimated 32,631, valued at $81,577,500.

Total (non-core) acres 60,211, valued at $159,227,500

3. Multiple Abraxas insiders have been buying stock throughout 2013: On January 7, 2013, Harold Carter (a director) purchased 2,000 shares, Dean Karrash (a director) purchased 5,000 shares, and Brian Melton, (a director) purchased 1,500 shares. On January 13, Edward Russell, (a director) purchased 5,000 shares. On January 17, Brian Melton bought another 1,750 shares. On January 28, Paul Powell (a director) purchased 5,000 shares.

4. While recent buying from multiple insiders is very positive, what is even better is that some insiders have a major stake in the company. For example, Franklin Burke, (a director) owns about 3.1 million shares. That stake is currently worth over $6 million. Robert Watson (an officer), owns about 1.3 million shares, which is worth about $2.5 million. Plus, other insiders own significant stakes.

Abraxas also has some significant institutional shareholders which include Northpointe Capital LLC., with about 7.5 million shares, or around 8% of the entire company. The Vanguard Group, Inc., owns about 5.15 million shares, or about 5.5% of the entire company. The Clinton Group owns nearly 3.3 million shares. A couple of BlackRock funds own about 5 million shares, and there are numerous other high-profile funds invested in Abraxas.

5. Abraxas has some upcoming catalysts that could increase production in the second quarter of 2013. In the Eagle Ford and South Texas and McMullen County, it recently drilled one well which has produced significant amounts of oil. It is drilling additional wells in that area which could increase production in the coming months. An additional well is expected to come into production during Q2 and this is in an area where the last 4 wells have each tested in excess of 1,000 barrels of oil per day.

6. Earlier this year, Abraxas said it plans to sell most of its non-operational Bakken interests, which totals about 14,300 acres. Just a couple days ago, the company came through on this goal as it announced it signed an agreement to sell the majority of this non-operated Bakken property (about 13,500 acres) to Natural Resource Partners L.P. (NYSE:NRP) for $35.3 million plus the assumption of an estimated $8.1 million in capital expenditures. The company stated:

"This is obviously a transformational day for Abraxas as we significantly reduce our leverage while simultaneously shifting our focus to a core operated portfolio. Heading forward we will continue to rationalize our asset base to focus on our core operated properties primarily in the Bakken and Eagle Ford. Moreover, the removal of the non-operated Bakken assets from our portfolio will provide the Company with a much more predictable production growth profile and CAPEX schedule. We look forward to updating the market shortly as we evaluate opportunities to accelerate growth in our core operated areas."

The combination of an undervalued stock, multiple insiders buying, renewed focus on core production and asset sale catalysts could make this stock an ideal buy right now. These recent developments could be positioning Abraxas for a buyout as reduced debt levels from asset sales and a more streamlined focus and production base simplify operations and reduce risks. While many oil and gas companies have exploration risks that investors should consider, this risk seems mitigated since Abraxas is primarily developing production in areas that have historically offered worthwhile reserves and production. The main risk could be the price of oil, however, with the economy showing signs of growth in housing and with jobs, this risk appears limited at this time.

Nokia (NYSE:NOK) shares have been declining over the past few years, although more recently the stock has been showing signs of strength. Nokia shares trade below $4 and there are a few reasons why it appears to be too cheap to ignore. Nokia has a very strong balance sheet, a valuable patent portfolio, new products and turnaround potential. Here are a few reasons to consider the stock, especially on any pullbacks:

1. New products: On June 10th, Nokia launched sales for the Lumia 925 in Germany. This latest feature-packed phone will also become available in other European countries, China and the U.S. shortly. The Lumia 925 offers a sleek metal case, and a camera that has advanced lens technology and next-generation imaging software. It also features "Nokia Music" which provides unlimited streaming of free music playlists as well as navigation services. Nokia is also releasing the "Asha 501" phone into over 90 countries for just $99, (without a contract). This phone looks well-positioned to target consumers in emerging growth countries which is a market that Nokia could dominate as it has strong brand recognition and affordability with consumers worldwide.

2. Financial strength: Nokia has a very strong balance sheet with about $13.5 billion in cash and around $7.28 billion in debt. The current market capitalization is about $14 billion, and the enterprise value is only around $7.2 billion due to the cash position. In fact, Nokia's current cash position is equivalent to about $3.64 per share. This financial strength gives the company the flexibility to develop new products and invest in R&D which could drive future growth. It also could position the company to be a more attractive takeover target since Nokia has a net cash position.

3. Valuable patents: Much has been made of the valuable patent portfolio at BlackBerry (NASDAQ:BBRY) but Nokia also has widely-used technology that is generating licensing revenues. Jacob Steinberg has made a case for the potential value of Nokia's patent portfolio and he details why the patents could be worth $8 to $15 billion. This is significantly more than Nokia's current enterprise value of roughly $7.2 billion. This patent portfolio is yet another asset that could be monetized further and it could also make Nokia increasingly attractive as a takeover target.

4. Takeover potential: At current levels, Nokia shares appear to be a "giveaway" when considering the cash hoard of about $13.5 billion and a patent portfolio that could arguably be worth $8 to $15 billion. It seems that either a spinoff of certain assets or a takeover of the company could unlock plenty of value for shareholders. Nokia has a significant relationship with Microsoft (NASDAQ:MSFT) and it features the Windows 8 operating system in certain products. Microsoft's cash hoard of nearly $74 billion means it can buy Nokia or just about anything it wants. Since Microsoft has a history of acquiring communication companies like Skype in the past, and because it needs to consider the smartphone market to remain relevant as mobile devices become increasingly popular, an acquisition of Nokia could make sense. There has been a history of acquisitions in the smartphone industry in the past. Hewlett-Packard (NYSE:HPQ) bought Palm a few years ago and Google (NASDAQ:GOOG) bought Motorola Mobility, not too long ago. Earlier this year, China's Lenovo said it was considering a deal for a smartphone maker and even if that company did not directly target Nokia, a major deal in this sector could spark significant interest in Nokia shares.

5. Risks appear limited now: The strong balance sheet, new products which are likely to spur revenue growth in the coming quarters, plus an already beaten-down stock price all appear to limit downside risks for investors. As mentioned above, the current cash position is equivalent to $3.64 per share and Nokia shares are trading close to that level now. Furthermore, analysts expect the company to report positive earnings in 2013 and 2014 and profitability (even if limited) lowers risks and gives the company more time to either complete a turnaround or possibly spinoff assets if not become the target of a takeover. These factors make Nokia a compelling low-priced stock to consider now.

Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Source: These 2 Sub-$5 Stocks Are Too Cheap To Ignore And Have Takeover Potential