Anytime you hear an analyst or a pundit hawking a stock based on it's nominal face value (Great stocks under $10 - Forbes.com) run the other way, writes The Stalwart. You see there are various measures that help you find cheap stocks, such as a low p/e ratio, or a low price-to book. A low stock price isn't one of them -- otherwise the British markets where stocks rarely trade above 5 Pounds Sterling would be a great buy all the time -- or stocks would become a better value merely by doing stock-splits.
Unfortunately this nonsense is pervasive, and in the above link to Forbes Radio, the nonsense is layed on thick. First, the analyst recommends UTStarcom (NASD: UTSI) as a great way to play the burgeoning Chinese Cell-Phone market. Problem is, UTSI isn't focused on Cell-phones, they're focused on a lower-end technology called PAS. It's low margin, and as the people become more affluent, they'll adopt regular cell-phones. Beyond that, the analyst fails to mention that the company is facing mounting losses, and has had serious accounting issues which they have failed to rectify. Who cares that they have a PE of 7, as the analyst says, when they won't be making money in future quarters?
Hey, but at least the stock's under $10.
This writer wasn't able to listen to this much further, but next Ciena (NASD: CIEN) was recommended as a stock that trades at just over $2 per share but has nearly $1.50 in cash. Wow!, what a deal. Oh except for the fact that the company has nearly that much in debt, meaning that net cash is a lot closer to $0/per share. And of course, they're still losing money.
So that's what passes for analysis in the venerable world of bargain stocks.
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