Top 3 Promising Analyst Stock Picks For Under $10

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Includes: MNR, PLXT, RWR, UMPQ, VNQ
by: Simon Monger

PLX Technology Inc. (NASDAQ:PLXT), Umpqua Holdings Corporation (NASDAQ:UMPQ), and Monmouth R.E. Investment Corporation (NYSE:MNR) are three top analyst stock picks priced under $10.00 per share. In this article, we’ll take a look at the catalysts driving these three stocks and how to effectively invest in them.

PLX’s Investments Could Pay Off in the Future

PLX Technology Inc., a developer of integrated circuits that perform critical system connectivity functions that underlie electronic equipment, was initiated by ThinkEquity with a Buy rating and $5.00 per share price target. At a significant 54% premium to the current market price, the analyst’s price target reflects a very bullish outlook on the company’s future.

Last quarter, the company reported revenues that increased 3.5% to $30.7 million, due to higher sales of its PCI Express products and the introduction of its acquired Network PHY product line. While acquisition-related costs and increased research and development expenditures hurt its bottom line, these costs could translate to future benefits down the road.

Investors looking to capitalize on this opportunity may want to consider a covered call strategy. By purchasing equity and writing out-of-the-money call options, investors can reduce their overall invested capital over time while retaining some upside potential. While these options are somewhat illiquid at the moment, limit orders can be used to execute favorable trades over time.

Umpqua has Momentum, Appears Undervalued

Umpqua Holdings Corporation, a financial holding company with commercial and retail banking operations, as well as retail brokerage services, was upgraded by Stifel Nicolaus to a Buy rating with an $11.00 per share price target. At a significant 14% premium to the current market price, the analyst’s price target reflects a very bullish outlook on the company’s future.

The somewhat unique bank appears undervalued on a book value basis, as well as relative to its peers with a P/E ratio of just 23.54x ttm. Meanwhile, the firm’s loan portfolio has also seen positive momentum, which could help drive earnings moving forward. Combined, these elements yield a banking stock that is relatively secure with strong growth prospects.

Investors looking to capitalize on this opportunity may also want to consider a covered call strategy, which can help lower their invested capital over time. Like PLXT, these call options appear to be relatively illiquid, but using limit orders can help execute trades at favorable prices.

Monmouth Could See a Turnaround

Monmouth R.E. Investment Corporation, a real estate investment trust focused on commercial properties with strong tenants like Federal Express, was initiated by Wunderlich with a Buy rating and $10.00 per share price target. At a significant 29% premium to the current market price, the analyst’s price target reflects a very bullish outlook on the company’s future.

During the second quarter, the company’s FFO increased to 17 cents per share from 14 cents per share, while its total real estate investments jumped to about $406 million. Meanwhile, the firm’s COO and several directors have been making small but steady insider purchases throughout the year.

Investors interested in taking a position in this company may want to consider a pairs trade, given the risks associated with the commercial real estate market. This trade can be setup by going long MNR while simultaneously short-selling a commercial real estate ETF. Some common ETFs include SPDR DJ Wilshire REIT ETF (NYSEARCA:RWR) and Vanguard REIT ETF (NYSEARCA:VNQ).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.