By Darnell Brown
This article will examine six analyst ‘buy’ rated stocks that trade for less than $10. We will try to determine if any of these stock have the potential for large future gains. Please use the analysis below as a starting point for your own due diligence:
Sprint Nextel Corporation (S): Sprint-Nextel provides wireless and wireline communication services. It has a market cap of $11.98 billion. Sprint has not turned a profit since 2006. The company’s 2010 earnings per share came in at -1.05. Sprint’s stock price has reflected the company’s poor earnings. The stock is currently trading at $4.00, which is the low end of its 52 week trading range. Over the last 52 weeks, the stock has traded between 3.70 and $6.45. On July 28th, Sprint reported dismal second quarter earnings results. The company lost $847 million, which translates into a per share loss of $0.28 compared to loss of $0.15 in the first quarter and $0.25 in the year ago period.
Sprint has lost money in each of the last five years. The primary reason that Sprint is losing money is because of stiff competition from companies like AT&T Inc (T), Verizon Communications Inc. (VZ) and Deutsche Telekom AG (DTEGY.PK). Sprint has increased spending in an effort to upgrade its network and hold off its competition. However, Sprint's top two competitors, Verizon and AT&T, continue to increase their market share over Sprint. As a result of Sprint’s continued market share losses, investors have lost faith in the company. After Sprint’s July 28th earnings report, the stock price dropped 16%. Sprint has continued to lose market share and lose money. I would not wait for this company to make a turnaround. I rate Sprint Nextel Corporation as a hold.
Magic Software Enterprises Ltd. (MGIC): Magic Software provides cloud computing services through its iBolt application.
Magic Software has a market cap of $191.6 million with a price earnings ratio of 17.13. The stock's 52 week trading range has been between $2.22 and $9.74. Magic Software’s stock is currently trading at $5.31. On August 3rd, the company reported second quarter earnings. Revenue was $27.4 million, up 28% from the $21.5 million reported for the second quarter of 2010. Net earnings were $3.5 million, an 84% increase from the $1.9 million reported in the second quarter of last year.
Since 2009, Magic Software has repeatedly reported strong revenue and earnings growth. The stock price is $5.31, which is in the middle of its 52 week trading range. The stock's price earnings ratio is 17.13, which I consider to be cheap for a company with strong earnings growth. I rate Magic Software as a buy.
SmartHeat Inc. (HEAT): SmartHeat installs heating and cooling systems in China. SmartHeat has a market cap of $124.93 million. This stock has been one of the Nasdaq’s (NDAQ, QQQ) poorest performers. The company’s stock has traded in a 52 week range of between $1.08 and $8.11. The stock is currently trading at $1.39 which is 82.86 % off of its 52 week high. On May 10th, the company reported a $0.05 loss, missing earnings expectations by $0.10 a share.
Over the last year, SmartHeat has been in a horrific downtrend. In the latest quarter, profits fell 300%. In the last three quarters, profit growth has been a negative -74%. SmartHeat Inc. is located in the People's Republic of China, and there are no news reports that explain why the company’s business has deteriorated so quickly. I would not touch this stock until I could find out why revenues and earnings dropped off so quickly. I rate SmartHeat Inc a sell.
Quepasa Corporation (QPSA): Quepasa Corporation owns and operates the Quepasa.com website. Quepasa.com is a social network geared towards Hispanics, and offers an online game platform for the growing Spanish speaking community.
Quepasa has a market cap of $124.93 million. Quepasa has a negative price earnings ratio, as the company has lost money in each of the last 10 years. The stock’s 52 week trading range has been between $3.25 and $15.45. The stock is currently trading at $7.72. The company reported a first quarter earnings loss of $1.5 million.
Quepasa has consistently lost money for a long period of time. The company had 23% first quarter earnings growth but had an EPS loss of $0.10. There are no foreseeable events that will make this company profitable. I believe that any money invested in this company will be dead money. I rate Quepasa as a hold.
Suntech Power Holdings Co. Ltd (STP): Suntech Power is a solar energy company which sells solar power modules. The company is attempting to establish itself as a low-cost, worldwide player.
Suntech has a market cap of $175.74 million and a price earnings ratio of 5.32. The stock has been in a 52 week trading range of between $2.58 and $11.14. The current stock price is $3.03, which is near the low end of its 52 week trading range. First quarter revenues were $877 million, up 49% from the $588 million reported in the first quarter of 2010. First quarter net income was $32 million, up 54% from the 20.7 million reported a year ago.
Suntech stock price has suffered since its first quarter earnings report. Even though the company reported EPS of $0.17, analysts expected an EPS figure of $0.352. I have questions about the strength of Suntech’s management team. However, the company has been consistent in growing revenues and earnings. I think that as a result of the company missing first quarter earnings projections, this stock has been oversold. With a price earnings ratio of 5.32, this stock is cheap. I rate Suntech as a buy.
China Xiniya Fashion Limited (XNY): China Xiniya designs and sells men’s business and casual clothing in the People's Republic of China.
China Xiniya has a market cap of $175.74 million and a price earnings ratio of 4.08. The company’s stock has traded in a 52 week range of between $2.58 and $11.44. The stock is currently trading at $3.03 near its 52 week low. This company first traded on the New York Stock Exchange only last year, on November 24, 2010. Coverage of the company is scarce. The company reported first quarter EPS of 0.08, down 296% from fourth quarter EPS of 0.27.
China Xiniya stock has performed poorly. That is because first quarter earnings per share were down significantly from the previous quarter. There are no news reports or corporate statements that explain the drop in earnings, and I find the latest conference call rehearsed and inadequate. I do not feel that I understand what is going on with this company. I do not feel comfortable with this company’s lack of transparency. I rate China Xiniya as a sell due to its opaque structure and significant earnings drop.