Here we look at five stocks that are currently trading under $10. Do these stocks represent shareholder value at their current share prices?:
Meritor Inc (MTOR): Shares are trading around $8.80 at the time of writing, and at the low end of their 52-week trading range of $6.00 to $22.65. At the current market price, the company is capitalized at $836 million. Earnings per share for the year were $0.35, on a price to earnings multiple of 24.89.
Meritor’s third quarter results were extremely positive, with sales increasing 33%, and the shares have been recovering from their 52-week low over the last few weeks. The fall in the share price has been with the sector as lower economic growth forecasts have hit truck sellers and auto-parts manufacturers. Dana Holdings (DAN) is another manufacturer whose shares have been similarly hit. For investors looking to take advantage of these historically low share prices, Meritor’s price-to-earnings ratio of 25 is half that of Dana Holdings. Even though Toyota (TM) is forcing its parts suppliers to cut prices, Meritor’s shares should benefit from a better, and more prolonged bounce than Dana’s.
Sirius XM Radio Inc (SIRI): Shares are trading around $1.70 at the time of writing, toward the bottom end of their 52-week trading range of $1.24 to $2.44. At the current market price, the company is capitalized at $6.44 billion. Earnings per share for the last fiscal year were $0.04, placing the shares on a price-to-earnings ratio of 41.95.
I have to laugh when analysts reaffirm overweight ratings, and accompany it with a drastic cut in share price target. That is exactly what Morgan Stanley’s Benjamin Swinburne did in Sirius in the second week of October. He cut his share price target by a massive 30% to $2. The company has over 20 million subscribers to its radio output. This converted to earnings per share last year of $0.04. It expects to add another 1.6 million subscribers next year. I expect it to undershoot this number, as disposable income becomes even tighter in the economy. Those investors who want exposure to radio should look elsewhere. Cumulus Media (CMLS) operates commercial radio stations, and made profits of $0.81 per share last year. Trading at $2.80, on a price to earnings multiple of 3.49, the shares look cheap for the medium- to long-term investor and certainly better value than Sirius.
Northgate Minerals Ltd (NXG): Shares trade around $3.60 at the time of writing, compared with their 52-week trading range of $2.41 to $4.42. At the current market price, the company is capitalized at $1.06 billion. The company made a loss per share of $0.28 last year.
Northgate has recently announced an increase in gold production of 14% quarter on quarter. The average net cost of mining this gold was $811 per ounce. The costs of mining its gold reserves are falling, and gold – for much of this year – has been increasing in value. Consequently, net income should rise over the next 24 months, particularly if gold can recover its highs of around $1950 an ounce: a good buy for those looking for an outright play on the gold price. Gold has the attraction of being a store of value, and not linked to industrial usage. As a comparison, Newmont Mining (NEM) is far more diversified, and its earnings per share last year were derived from a range of metals and minerals. With global demand weakening for its industrial mineral and metals output, its earnings per share of $4.48 last year may come under pressure over the course of the economic cycle, and the shares, at $64, look a little rich at this time.
BioSante Pharmaceutical (BPAX): Shares are trading around $2.50 at the time of writing, as against their 52-week trading range of $1.40 to $4.02. At the current market price, the company is capitalized at $272 million. Loss per share for the last fiscal year was $0.71.
BioSante shares have lost 75% of their value since coming to market in 2000. It is spending heavily in the research and development of its key products, particularly LibiGel, a product designed to increase the female libido. If this passes Phase III FDA clinical trials, this may come on line in twelve months. The company has been promising much from this drug for at least three years. Losses will continue to flow, and cash continue to be burnt. The company’s operating cash flow was -$49.42 million last year, and cash in the bank now stands at $37.1 million. It would not surprise me to see the company return to the market to seek extra cash (as it did in July). Any slippage of FDA approval will harm the shares further. A very speculative buy, and best avoided by those who value their own cash.
Ariad Pharmaceuticals Inc (ARIA): Shares are trading around $10 at the time of writing, against their 52-week trading range of $3.51 to $13.50. At the current market price, the company is capitalized at $1.32 billion. Earnings per share for the last fiscal year were a negative $1.14.
Ariad recently filed - together with Merck (MRK) – for FDA approval of ridaforolimus, a drug that would treat cancer patients who have been aided by chemotherapy in the past. Though the review would take ten months, this is positive news in a sensitive area of biotechnological research. If approved, Merck will pay Ariad $25 million, and then collaborate on marketing. The company has more than $80 million in cash, enough to see it through the next eighteen months of drug development. This is a biopharma stock that merits its stock price, and investors should look to any share price weakness to buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.