5 Stocks Under $10 With Major EPS Growth And Upside Potential

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 |  Includes: AA, BAC, F, MU, S
by: David Alton Clark

The Gist

On average, the five stocks discussed below have 80% EPS growth projected for next year. Alcoa (NYSE:AA) has the highest projected EPS growth rate at 155%, while Ford (NYSE:F) has the least with 18.25%. This fact alone carries little weight, but it's a good starting point when looking for buying opportunities.

A company's earnings per share is conceivably the most important statistic to understand before investing in a stock. Each time you consider starting a position in a stock, you should prudently scrutinize its earnings information. The reason earnings are so vital to investors is that they tell you about the relative profitability of a company.

Additionally, the five stocks are trading at or below $10. Stocks trading for $10 or less tend to be more volatile with high betas and frequent, large percentage moves in the stock price. This provides the opportunity for greater returns (or losses) relative to the market. These are S&P 500 stocks with market caps of $6 billion or greater. We are looking for solid stocks that may provide more bang for your buck.

Finally, these stocks have some very positive fundamentals. Now, simply selecting $10 stocks with some strong fundamental data is only the first step to finding winners for your portfolio.

The Breakdown

In the following section, we will perform a review of the fundamental and technical state of each company to determine if these stocks are buys or sells at current levels. The following table depicts summary statistics and Tuesday's performance for the stocks. The following charts are provided by Finviz.com.

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Alcoa, Inc.

Alcoa's projected EPS growth rate for next year is 155.17%. The company is trading 34% below its 52-week high and has 27% potential upside based on the consensus mean target price of $10.68 for the company. Alcoa was trading Tuesday for $8.42, down almost 2% for the day.

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Fundamentally, Alcoa has several positives. The company has a forward P/E of 11.38. Alcoa is trading for 21 times free cash flow and two thirds of book value. The company pays a dividend with a yield of 1.43%.

Technically, the stock had been in a short-term uptrend since mid-July. The stock just broke below support at the 50-day sma and is now trading 1% below it. The stock has been dead money since May.

We have been in the midst of a colossal sell-off of basic materials stocks based on unprecedented macroeconomic and geopolitical trepidations. 2008's so called Great Recession's only peer seems to be the Great Depression of the 1930s. Alcoa is down fourfold from its 2008 high of $40. If you are a long-term investor, this could be a chance to pick up Alcoa at its lows. Eight dollars seems to be the bottom for this stock.

Bank of America Corporation (BAC)

BAC's projected EPS growth rate for next year is 65.45%. The company is trading 21% below its 52-week high and has 16% potential upside based on the consensus mean target price of $9.30 for the company. BAC was trading Tuesday for $8.00, slightly up for the day.

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Bank of America was trading for $5.26 the day of my initial recommendation in December. The company is now trading up 50% at $8.00.

In December of 2011, the U.S. banks had been severely hammered. It was mostly due to eurozone headline risk regarding sovereign debt defaults. In actuality, U.S. banks had minimal exposure to the risk then as well as now.

I am long BAC. The coveted golden cross was just achieved by BAC. This is when the 50-day SMA crosses above the 200-day SMA and is considered extremely bullish. The stock has continued to rise in the face of macro headwinds. This tells me the bad news has been priced in and the stock still has positive catalysts.

Ford Motor Co.

Ford's projected EPS growth rate for next year is 18.25%. The company is trading 27% below its 52-week high and has 43% upside based on the analysts' mean target price of $13.50 for the company. Ford was trading Tuesday for $9.41, up almost 1% for the day.

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Fundamentally, Ford has several positives. The company has a forward P/E of 6.32. Ford is trading for 7.79 times free cash flow and slightly over two times book value. The company pays a dividend with a yield of 2.13% and has a PEG ratio of 0.28 and a net profit margin of 13.28%. Ford insider ownership has increased by 54% over the past six months.

Technically, Ford is attempting to complete a trend reversal. The stock was posting higher highs and higher lows since the start of August. Recently the stock has been drifting lower but still trading above the 50-day SMA. Ford is another long-term buy here. The risk/reward ratio favors long trades. Nine dollars has proven to be substantial support for the stock.

Micron Technology Inc. (MU)

Micron's projected EPS growth rate for next year is 117.80%. The company is trading 34% below its 52 week high and 61% potential upside based on the consensus mean target price of $9.80 for the company. Micron was trading Tuesday for $6.09, down almost 2% for the day.

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Fundamentally, Micron has some positives. Micron is trading for approximately 78% of book value and 74% of sales. Stifel Nicolaus reiterated their Buy rating on the stock on June 21st with a $9.50 price target.

Micron has been stuck in a trading range between $7 and $6 for quite some time. At the time of my last article, I suggested you stay out of Micron. The stock was trading at $6.79 at the time. I now feel the situation has changed and may favor longs at this point. If the stock can break through resistance at the 50 day sma, it should continue higher. Avoid the stock until then.

Sprint Nextel Corp. (S)

Sprint's projected EPS growth rate for next year is 43%. Currently, the company is trading 13% below its 52 week high and 2% potential upside based on the analysts' mean target price of $4.90 for the company. Sprint closed Tuesday down 1% for the day.

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Sprint has some fundamental positives and its growth catalysts are still intact. Sprint's name is still being bandied about by the Street's merger rumor mill. Sprint's stock has doubled recently. I believe the stock will continue to rise down the road, but will go through a period of back and filling for the next few months and may even test the 50 day sma.

The fundamentals and catalysts are still in place; nevertheless, the stock has doubled in the last couple of months. The risk/reward ratio has changed for the stock. I would look for a significant pullback prior to starting a position.

The Bottom Line

Significant projected EPS growth is a huge positive for a stock. This is a leading indicator that the company is on the right track. A higher stock price should follow. Nevertheless, there are many other factors that will influence a stock's performance.

Right now there is a huge argument as to whether the market will react favorably or not to the ECB's plans to cure the eurozone's fringe member's debt issues once and for all. It seems to me a preponderance of pundits are taking a negative outlook. I posit the majority is wrong once again. Draghi is not going to pull any punches. Once we can rest easier that our European counterparts have everything under control, investors will finally be able to focus on stock fundamentals rather than macro concerns.

Disclosure: I am long BAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.