Stocks that have seen better times and look bombed out can sometime present good value to investors. Here we look at five stocks trading under $5, that some think may be due for a rally:
Sun Bancorp Inc (SNBC): Shares are trading at $2.50 at the time of writing, and at the low end of their 52-week trading range of $2.25 to $5.45. At the current market price, the company is capitalized at $215.17 million. Earnings per share for the last fiscal year showed a loss of $3.40.
SunBancorp’s core commercial banking business may have seen the worst of its current woes, though with the economy slowing it would be a brave investor to believe so. Though earnings are expected to improve over the next couple of years, the potential negative impact of a weakening economy should not be disregarded. Though revenue is currently growing, Suncorp’s niche size may make it vulnerable to competition from far larger rivals such as PNC Financial Services (PNC), where earnings are positive ($6.80 per share) and a dividend is paid (the shares yield a not to be sniffed at 2.90%). Investors, in this case, should follow PNC, and avoid the loss making SunCorp.
Marine Products Corp (MPX): Shares are trading around $4.20 at the time of writing, toward the bottom end of their 52-week trading range of $3.12 to $8.04. At the current market price, the company is capitalized at $157.13 million. Earnings per share for the last fiscal year were $0.09, placing the shares on a PE ratio of 46.67.
Conventional wisdom would say to avoid stocks that operate in the luxury market at this time, though Marine Products might be a stock to look more closely at. Rich people always seem to afford their playthings, and Marine Products cater to the sea faring carvings of the wealthy. Whilst gross margins (at 16.86%) are lower than rival Brunswick Corporation (BC), it is making a profit from its business, whereas Brunswick made a loss last year of $0.17 per share. Marine Products’ smaller size and confidential, personal, approach make it a magnet for savvy boat buyers, and earnings are expected to increase by around 20% over the next twelve months. Though the price-to-earnings ration looks very demanding, any small overshoot in its earnings will add upside to this volatile stock. A speculative buy.
Skilled Healthcare Group Inc (SKH): Shares trade around $3.50 at the time of writing, compared with their 52-week trading range of $3.30 to $15.93. At the current market price, the company is capitalized at $137.63 million. Earnings per share for the last fiscal year were $0.21, placing the shares on a PE ratio of 16.92.
Skilled Healthcare’s profits are going to suffer from cuts in Medicare. The good thing is that the company’s management knows this, and is taking action to limit the damage. Though it recently gave guidance of decreased earnings forecasts – now expected to be in the range of $1.07 to $1.12 per share for the year to December 31, its Chief Executive, Boyd Hendrickson, believes that it is ‘well positioned for the furture’ given its diversified healthcare offerings.
Its operating margin of 12.29% compares more than favorably with competitors Kindred Healthcare (KND) at 2.58% and Sun Healthcare’s (SUNH) 4.28% . The sell off in the industry may be overdone, and Skilled Healthcare looks to be well positioned with good management to see it through tough times.
Quantum Corporation (QTM): Shares are trading around $2 at the time of writing, at the lower end of their 52-week trading range of $1.54 to $4.45. At the current market price, the company is capitalized at $489.31 million. Earnings per share for the last fiscal year were $0.01, and the shares trade on a price-to-earnings multiple of 234.44.
Earnings per share at Quantum are expected to rise to $0.12 for the year ending March 2012, and then to $0.18 the following year. This rate of earnings growth would, perhaps, justify such a price-to-earnings ratio. When compared with competitors such as Hewlett Packard (HPQ) and Oracle (ORCL) its operating margin of 3.39% compares very poorly (10.15% and 36.79%, respectively). However, it is due to present on tiered storage at the Storage Networking World Fall 2011 Conference. It must be hoped that this will continue to fuel demand for the company’s storage and backup systems, for in this world where cloud technology is making virtual data storage far easier, and cheaper, Quantum’s margins may come under further pressure. Were the price-to-earnings ratio to come down to a more manageable level (Oracle’s is 17.01, and Hewlett’s 5.84), then based on 2013 expected earnings of $0.18 the share price at that time should be somewhere in the region of $1.10 to $3.10. More upside than downside, but only marginally, and investors should perhaps stick with Oracle for now.
THQ Inc (THQI): Shares are trading around $1.50 at the time of writing, at the bottom of their 52-week trading range of $1.48 to $3.53. At the current market price, the company is capitalized at $105.23 million. Earnings per share for the last fiscal year were a negative $2.12.
Gaming is big business, and investors often overlook the smaller players in the market. Activision Blizzard (ATVI) and Electronic Arts (ERTS) dominate here. Gross margins at the giants are similar to THQ’s gross margin of 60.85% (57.65% and 59.79% respectively), but THQ’s operating margin of –12.26% tells a story of costs perhaps running out of control (Activision, for instance, posts an operating margin of 24%). Electronic Arts and Activision are larger, by a distance, and conduct a greater portion of their business through internet downloads. With better cashflow, and more visibility in the Xbox and Wii to boot, they are a better buy than THQ. With Zynga coming to the market later this year also, supply of shares in gaming stocks could put pressure on investors’ appetitie for THQ shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.