2 Cash Rich, Sub $5 Stocks That Look Poised To Break Out

Includes: EGHT, HL
by: Bret Jensen

A key advantage individual investors have over institutional investors is the ability to buy stocks selling at under $5, which many institutions are prohibited to do. A strategy I have employed over the years is finding stocks just under $5 with improving growth and/or valuation stories that have just crossed over their 100 day moving average. I have found in many cases once the stock clears $5, institutional buying can come in and push the stock significantly higher. Two stocks that look compelling right now employing that strategy are below.

8x8, Inc (EGHT)

Four reasons EGHT should appeal to growth investors at just over $4 a share:

  1. Earnings are on a solid growth plane. The company made 11 cents a share in FY2011 and EGHT is expected to book 18 cents a share in FY2012 and 27 cents in FY2013.
  2. Revenue growth is also impressive. Analysts expect better than 20% sales growth and more than 15% in FY2013. EGHT has a five year projected PEG of under 1 (.85).
  3. In addition to crossing over its 100 day moving average within the last week, earnings estimates for both FY2012 and FY2013 have improved over the past two months.
  4. The median analysts' price target ($6.50) is some 50% above the current stock price. In addition, net cash on the balance sheet accounts for some 10% of its market capitalization.

Hecla Mining Company (HL)

Four reasons HL is a solid speculative pick at just under $5 a share:

  1. The company has a robust balance sheet with over $260mm in net cash (Just under 20% of market capitalization) and also yields 1.8%.
  2. Like most mining shares, consensus earnings estimates have been coming down throughout 2012. However, estimates have stabilized in the last month and HL sells for just over 10 times forward earnings; a substantial discount to its five year average (23.4).
  3. Growth is set to resume in FY2013 and sales are projected to improve some 35% next year as production comes online. The market should start to anticipate this before the end of the year and insiders made some small buys in May as well.
  4. The stock looks like it has bottomed and just crossed its 100 day moving average. HL was north of $8 a share less than a year ago (see chart).

(Click to enlarge)

Disclosure: I am long HL.