In these turbulent times in the economy, some of these small gems are familiar names that were priced at over $35 a share in the not-so-distant past, while others have been the victims of indiscriminant selling in their sector. While I am not suggesting that any of these stocks should be purchased immediately after reading this article, they definitely have earned a second glance and some time on your watch list.
Stocks under $5 are an entirely different animal than their high-priced counterparts of the financial world. They have to be approached and analyzed differently. Institutional ownership, especially of larger funds and long-short funds tends to be lower on stocks priced at $5 or less, and that can mean more volatility due to lower volume and the larger impact of significant buy or sell orders. The benefit of lower institutional ownership tends to be a lower likelihood of sharp downturns based only on momentum. Use this analysis as a starting point in your own due diligence.
Alcatel-Lucent (ALU) - This Paris-based company is a world leader in providing communications and information technology equipment. If you are looking for a significantly undervalued telecom company with the potential for quick turn around and a high upside, keep looking because Alcatel Lucent is not it. Alcatel-Lucent plunged to its current $1.8 per share, a new 52 week low. Investors have had little to look forward to this quarter, after reporting lack luster third quarter earnings and disappointing guidance. Going forward, the EPS estimate is at $0.11 for the quarter ending in December. What is more alarming than another possible earnings miss are the plans for another round of restructuring costs, something that has continued to plague this company for some time.
Huntington Bancshares Inc. (NASDAQ:HBAN) - Huntington is a regional bank and provides all the standard banking services. Over the past three years the regional banks have actually fared better than the larger super banks like Citi (NYSE:C), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) due to their limited exposure to toxic assets. While earning money is harder than it has been in recent memory the sustained extremely low interest rates, Huntington's balance sheet is likely to continue to improve with the average consumer's credit. At nearly $6 a share, the price to earnings ratio is just about 12. If that isn't enough to put this stock on your watch list, perhaps the 2.7% dividend yield will suffice while you're waiting for the stock price to continue its rebound. This is a great candidate for further research.
Hercules Offshore, Inc. (NASDAQ:HERO) - Hercules Offshore specializes in shallow water exploration and extraction of oil and gas both in the Gulf of Mexico and internationally. Currently priced at $4.1 a share this stock has fallen far from the over $38 a share it was priced at back in October 2008, before the financial crisis, with no evidence of regaining its former glory soon. That would require a 900% increase in stock price, which is simply inconceivable at this juncture and in the short-run. That does not mean that there are no gains available, however expectations should be managed. Hercules Offshore has invested heavily in new rigs and as hey deploy over the next two years could spark a much needed increase in revenue. This is a stock that has a good chance of doubling in the next 12 months as the price of oil stays high, and is worth keeping on your watch list.
Sirius XM Radio Inc. (NASDAQ:SIRI) - Sirius XM Radio is the only subscription satellite radio service left after the 2008 merger of Sirius and XM. It is projected to have around 22 million U.S. subscribers by the end of 2012 primarily reflecting improving U.S. auto sales and increased conversion of promotional and trial subscriptions. This stock is trading at $2.11 a share currently with an estimated P/E of 52. While Sirius XM is facing an increase in competition for the consumer's time from terrestrial radio, internet radio and music streaming services, there is an opportunity to ride the expected sustained rebound in U.S. auto sales over the next couple of years. Much like other subscription businesses, this is a company that will be able to leverage profits based on the number of subscribers it can sign up. As long as the subscriptions grow, so should the stock price.
Chimera Investment Corporation (NYSE:CIM) - Chimera is a specialty finance company that invests in residential mortgage backed securities. It is currently trading at $2.7 per trust unit, and is down 33% over the last 12 months. Its P/E is less than 5 and it boasts a monster 16% dividend yield. This isn't a REIT you buy into for potential growth or for appreciation. It is a 100%, pure dividend play. This company earns for the sole purpose of redistributing that cash to their shareholders as evidenced by the 116% payout ratio. I recommend keeping an eye on the dividend ex-date and buying in just in time to qualify. Once you receive the fat dividend payment you will have a personal choice to make on whether to exit this REIT, or stay long for subsequent distributions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.