While everyone wants to hit it big in the stock market, the economy has taken a lot of disposable income out of the pockets of many Americans. There are still some good investments available, but many people don’t have the kind of money to make large purchases. For this reason, finding stock under $10 per share can be an affordable way to start making money in the market.
Many people confuse low-cost stock with penny stock. While the name shows the obvious difference, (penny stock costs less than $1.00 per share) it doesn’t tell investors of the risk involved. This stock is usually a high risk/high reward company that issues large numbers of shares. Definitely not penny stock, companies like Campus Crest Communities Inc (CCG), LSI Corporation (LSI), Pacific Sunwear of California Inc (PSUN), Hecla Mining Co (HL) and SIRIUS XM Radio Inc (SIRI) fall into the low-cost category. They offer investors a way to put even smaller amounts of money to a potentially profitable use.
Campus Crest Communities Inc
The days of concrete block dorm rooms with stark furnishings are a thing of the past at many colleges, thanks to Campus Crest Communities Inc and competitors like American Campus Communities Inc (ACC) and Education Realty Trust Inc (EDR). These companies have been making the college experience more comfortable while making money for their shareholders.
Of the three, CCG has the smallest market cap ($314 million compared with $2.76 billion for ACC and $723 million for EDR). In addition, the company trades around the $10 mark (as does Education Realty Trust) while American Campus Communities hovers just over $40 per share. CCG’s 0.64 dividend and 5.7% yield outperform EDR (0.28% and 3%) straight up, while competing very well with the more expensive ACC, which comes in with a 1.35 dividend and a 3.5% yield. This strength not only allows Campus Crest Communities Inc to offer comfortable college housing, it can also provide a means of earning an affordable dividend.
Finding an affordable investment in the electronics industry can be exciting. That is especially true when it is a company with a 30-year history like LSI. This California-based manufacturer of electronic components was founded in 1981 and competes with enterprises such as NXP Semiconductors NV (NXPI) and Texas Instruments Inc (TXN), offering an affordable investment with a stable company.
Possessing a smaller market cap than its competitors, ($3.36 billion for LSI, $4.3 billion for NXPI and $34.35 billion for TXN) LSI boasts a strong 11.21 P/E and a 5.91 stock price that hovers just below the mid-point of its 52-wk range of $4.75 - $7.74. NXPI’s $17.26 share price is well below its 52-wk range of $12.31 - $35.32 and its P/E stands at 8.26. TXN’s P/E comes in at 12.54, while its $30.06 selling price is near the top of its 52-wk range of $24.34 - $36.71. With LSI buying back stock and undertaking strategic acquisitions like that of privately held electronics firm SandForce, the company is making moves that could make this sub $10 stock an excellent purchase.
Pacific Sunwear of California Inc
The clothing business in the US has not fared well through the global economic crisis, although some companies have managed to make progress over the past year. Unlike some big-name companies, Pacific Sunwear of California Inc has struggled with its year-to-year earnings during this difficult period.
Specializing in action sports and fashion apparel, PSUN competes most directly with companies like American Eagle (AEO) and Aeropostale (ARO). While PacSun has recently been able to reduce the number of short shares against its common stock by nearly 1.5%, the company hasn’t been able to translate that into profit for shareholders, as indicated by its expected $0.14 drop in earnings. This follows a five cent drop over three months and a year-to-year drop of seven cents.
That drop is in contrast to both AEO and ARO. While both companies have experienced year-to-year decreases in earnings, they have both remained in the positive (AEO at $0.12 and ARO at $0.23), allowing investors to continue making a profit. Without a defining event that turns the stock price around, investors are likely better off to avoid PSUN at this time.
Hecla Mining Co
Precious metal mining companies have long been a staple of the penny stock domain. These companies frequently issue millions of shares of common stock to raise funds for new exploration and mining projects. Companies like Hecla Mining Co, Barrick Gold Corporation (ABX) and Pan American Silver Corp (PAAS) are competitors which have risen to varying levels as prospering mining companies.
The lowest priced of the three, Hecla is still an interesting prospect for investors looking for stock under $10. Currently trading between $6 and $7 per share, the company still offers solid fundamentals and dividends, making it very appealing. With its $1.84 billion market cap and P/E of 23.42, the company’s steady trading range between $5.25 and $8.50 per share over the past six months makes its anticipated dividend of 0.14 very enticing, especially since it represents a 100% increase year-to-year over its 2010 totals.
By comparison, the company’s competitors both saw significant drops of nearly 20% in stock price over the past six months. ABX has regained most of what it lost and has a healthy P/E of 12.47, a dividend of 0.60 and a yield of 1.2%. PAAS has also achieved a positive return for investors; although it still has not fully recovered from the October price drop, the company has a healthy P/E of 10.59, a dividend of 0.10 and a yield of 0.40%.
For investors looking to diversify, Hecla Mining Co is a consideration for a stable, affordable stock that is able to return a dividend on an investment.
SIRIUS XM Radio Inc
While many radio networks have suffered as people find a growing number of alternatives for their listening choices, satellite radio has exploded onto the scene. Sirius XM Radio Inc is one of the leaders in this revolution, putting it in competition with the likes of Cumulus Media Inc (CMLS) and Belo (BLC). This competition has gone well for SIRI, and its low-cost makes the company a great investment option for stock under $10.
Rising after an October decline, the stock price of SIRI appears to be on the climb again as its 135-channel offering appeals to a growing number of subscribers. The company has a hefty P/E of 40.24 but its Q2 year-to-year increase was a healthy ten times over 2010. Its net income in Q2 swelled to 173 million, versus the 78 million of Q1.
Free cash flow (FCF) numbers are where SIRI really starts to look interesting. For the trailing 12 months (TTM), the company has generated an impressive $2.97 billion in revenue and a TTM FCF of $381 million for a margin of 12.8%. Over the same period, CMLS has generated $264 million of TTM revenue and $42 million in TTM FCF for a margin of 15.8%. This is similar to BLC, who has $688 million in TTM revenue, $100 million in TTM FCF and 14.5% for its margin. The recent dividend of 0.02 exceeded analyst expectations, making its affordable $1.65 per share price an attractive option for investors looking to catch it on the upswing.
Investing Wisely for Under $10
While the struggling economy has affected the disposable income of many would-be investors, there are some excellent options to be found for under $10 per share. Looking at businesses like these can allow investors to continue adding to their portfolios, even while their resources are down.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.