Low priced stocks are often one of the most volatile sectors in the market. Small to mid-size companies with share prices below $10 can see big moves both up and down when either positive or negative news is announced. Large capitalization stocks with shares priced at higher levels, are not as likely (for example) to double in price. A stock like General Electric (GE) has very little chance of doubling in value in the coming year, but there are many low-priced stocks that actually will even more than double by the end of this year. Smaller, albeit more speculative stocks have more risks, but also offer more reward and are also more exciting. Following the share price of GE could put some of us to sleep, but small cap stocks can be a thrill ride, especially if you buy them at the right time. For some investors it makes sense to invest a small portion of their portfolio in a more speculative, but higher potential reward stocks. With that in mind, CNBC's Mad Money host Jim Cramer has picked a number of stocks trading below $10 per share that he favors now. Here is a closer look at some high-potential stock picks:
Kodiak Oil & Gas Corp. (KOG) is a fast-growing oil and gas company that has already started to rebound off recent lows. This stock has also proven to be very volatile so it makes sense to take advantage of the big swings by buying on pullbacks. For example, when the stock market and oil saw major corrections last October, Kodiak shares declined to $4.29, and more recently traded near $7. Over the long run, investors who use a buy the dips strategy and patiently hold while this company grows reserves and production at its Bakken projects are likely to be well-rewarded. Kodiak recently completed three high working-interest wells in the Bakken, with initial production rates between 2,709 to 3,117 barrels of oil equivalent for each well. Kodiak is expecting 2012 production to run between about 17,000 and 21,000 barrels of oil equivalent per day. Cramer said Kodiak shares are "cheap", and it could be poised for a good move if oil rebounds. Since oil has become more volatile, it makes these shares more speculative. More conservative investors may want to consider buying Kodiak only after there are more signs that oil has clearly bottomed.
Here are some key points for KOG:
- Current share price: $8.34
- The 52 week range is $2.43 to $9.70
- Earnings estimates for 2012: 60 cents per share
- Earnings estimates for 2013: $1.03 per share
- Annual dividend: none
Zynga, Inc. (ZNGA) is a fast-growing developer of games that are popular in social networking sites like Facebook (FB), and on smartphones. The company is behind favorites like Farmville and Words With Friends. Zynga went public in December 2011, at $10 per share and now it trades for close to half that level. Investors have been concerned about the poor performance of other recent IPO's like Groupon (GRPN) and Facebook, as well as the competitive threats facing Zynga. The company also reported disappointing financial results with a loss of 10 cents per share for the first quarter of 2012. This was due in part to higher development expenses. Zynga has a very strong balance sheet with over $1 billion in cash and no debt. The shares recently hit a 52-week low, but have started to rebound and could have significant upside potential from these low levels. Cramer said Zynga "may actually be a decent spec play" and thinks the shares have bottomed at about $5. If investor confidence about the social gaming industry returns, this stock could move up very quickly.
Here are some key points for ZNGA:
- Current share price: $5.57
- The 52 week range is $4.78 to $15.91
- Earnings estimates for 2012: 27 cents per share
- Earnings estimates for 2013: 36 cents per share
- Annual dividend: none
Sprint Nextel Corporation (S) shares were trading near 52-week lows not long ago, but now the stock clearly appears to have bottomed out. Even with weak market conditions, the shares have been surging lately from about $2.30 to around $3.40. Sprint recently announced that it would offer the iPhone without a contract on a pay as you go plan for consumers. This could be an important new source of revenues for the company. Sprint shares still look speculative because the company has been losing money and it carries a high debt-load. For the first quarter of 2012, Sprint reported a loss of $863 million and a diluted net loss of 29 cents per share. It had a net loss of $439 million and a diluted net loss of 15 cents per share in the first quarter of 2011. Sprint's balance sheet has about $7.57 billion in cash and around $22.27 billion in debt. It also needs to invest billions in technology infrastructure in order to keep up with competitors. These issues should be considered as risk factors by investors before buying. However, if the company meets these challenges, the shares have significant upside from these low levels. Cramer likes that Sprint is introducing new products, but after a big run, he thinks it makes sense to wait for dips before buying.
Here are some key points for S:
- Current share price: $3.40
- The 52 week range is $2.10 to $5.75
- Earnings estimates for 2012: $1.53 loss per share
- Earnings estimates for 2013: $1.09 loss per share
- Annual dividend: none
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.