by Jeff Reeves | January 13, 2014 9:57 am
Finding cheap stocks to buy is no easy task in any market. But after a 30% run-up for stocks in 2013, many of the best cheap stocks have climbed so much that they are no longer so affordable.
But if you know where to look, you can still uncover cheap stocks to buy under $10 per share that hold significant upside in the new year. Sure, some of these cheap stocks are underperformers waiting for their turnaround. But there are a number of stocks out there that started 2013 at $5 but still trade easily under $10 a share — and have serious momentum on their side.
Buying the best cheap stocks involves much more than simply looking for a low stock price, however.
Here are 10 cheap stocks under $10 I have my eye on because they have specific strengths that look to capitalize on the current market rally in 2014:
China is a huge gaming market, and Shanda Games (GAME) is one of the most popular Internet video game portals in the nation. Shanda specializes in massive online role-playing games that span fantasy, strategy and martial arts themes. It also has a range of mobile games for the Apple (AAPL) iPad or Google (GOOG) Android devices.
Shanda had a pretty stagnant top line in 2013, but earnings should post annual growth of about 26% when the company reports its Q4 and full-year numbers in a few weeks.
While conventional console-based video games have been a struggle in a mobile age, online games and mobile titles remain popular. And Shanda is one of the most entrenched players in the fast-growing Chinese market — a place where many western companies still cannot do business thanks to government oversight.
Shanda is up 50% in the last year, but remains one of the best cheap stocks, going for around $5 stock.
QuickLogic (QUIK) is a “fabless” semiconductor company, meaning it designs and markets chips but does not fabricate them itself. QUIK semiconductors power tablets, smartphones and other devices — but unlike a company like Intel (INTC), you don’t have to worry about the capital expense of massive manufacturing infrastructure with this company.
QuikLogic simply designs the chips, sells them to gadget companies and allows a third-party company to make the actual products.
The stock has popped more than 60% in the past three months. But it’s still one of the top cheap stocks under $10 considering analysts’ increasingly bullish sentiment is a strong catalyst for QUIK to move higher after another great earnings report in a few weeks.
Brazil and Chile are increasing their electrical infrastructure as businesses and consumers ramp up demand. For example, Brazil consumed 455.8 billion kilowatt hours (kWh) of electricity in 2010 (the latest year for which figures are available), up from 383.3 billion kWh in 2006, according to Energy Information Administration.
Enter CEMIG (CIG), a South American utility that stands to benefit handsomely from that growth. Not only is CIG one of the top cheap stocks, but it provides the low-risk dividend potential of a utility stock.
CEMIG is a great opportunity, because after residential and businesses get on the electric grid, they tend to stay on it. In addition, the upcoming 2014 World Cup and 2016 Olympics in Brazil provide a good opportunity for CEMIG to get a boost in the amount of electricity that it sells to both tourists and businesses around the events.
CIG stock has dropped about 30% in the last year, as have many emerging market equities, but the negativity is largely priced in. Plus, CIG yields a dividend of about 10% based on its last two payouts, but those distributions are volatile.
Huntington Bancshares (HBAN) has seen brisk growth in commercial and consumer lending in the Midwest. Shares are up about 50% in the last year and are currently trading at all-time highs.
But even after this run up, the company has a 2% dividend that is only about 23% of profits, meaning big potential for future dividend growth.
In 2014, many Wall Street analysts are watching bank stocks because of actions at the Federal Reserve. Tighter monetary policy — including the “tapering” of bond buying at the Fed — has the potential to increase interest rates, and thus the potential to increase the margins on bank lending.
Between Fed actions, organic lending growth and the potential for HBAN to be an acquisition target, HBAN could be one of the best cheap stocks to buy in 2014.
Inland Real Estate (IRC) is an interesting option for your cheap stocks portfolio. The company owns commercial real estate properties and rents them to some of the biggest names in shopping — CVS (CVS), T.J. Maxx (TJX) and Walmart (WMT), among others.
Inland’s big-name tenants translate into rock-solid stability and the company thus boasts a 95% occupancy rate. It has been able to grow its net income by more than 11% over the last year, which has supported a big dividend payout.
As a REIT, Inland must pay 90% of taxable income to shareholders — so right now, the yield is about 5.4%.
Add that to 20% gains in the last year and you start to see how this $10 stock has a lot of upside in 2014.
Battered by the downturn in Europe, Spanish financial Banco Santander (SAN) has faced a lot of trouble since 2009. But SAN is finally showing signs of turning around as Spain starts growing once more. Europe finally exited recession in late 2013 and stability in the region has naturally led to more stability at its banks.
But SAN isn’t just a Europe story. Santander also has extensive operations in Latin America to fuel growth … and that exposure makes it one of the best cheap stocks under $10 to consider this year.
Adding this international stock is easy, too, because Banco Santander trades on the New York Stock Exchange just like Walmart (WMT).
If you’re looking to get a position in Europe as the continent bounces back from recession or if you want to play the emerging market consumer in Latin America, SAN is a great way to do so. And with an annualized dividend yield of about 8.8%, this bank stock will pay you nicely even if the share price stays put.
Lionbridge (LIOX) is the kind of cheap, small-cap stock that investors love. This player has soared 60% since October thanks to nice earnings and improving investor sentiment.
LIOX provides language translation services for some of the leading international industrial and technology companies, including Microsoft (MSFT) and Google (GOOG). But in the past few years, the company has grappled with cut-backs and soft enterprise spending from its major clients.
After some lackluster results, Lionbridge Technologies had a much better second-quarter and said that activity among its leading customers was improving. LIOX stock went on a tear soon after and has yet to cool off.
Margins could improve along with sales in the coming quarters to boost this cheap stock even higher. The company reports earnings in early February, and it could be a doozy of a report.
While there’s always the risk that businesses will spend less on IT should the economy get rocky, recent improvement shows that LIOX has momentum on its side right now and remains a hot tech play.
If you believe that bluer skies are ahead in 2014 (pardon the pun!) then JetBlue (JBLU) is a great option to play increased consumer and business travel.
Airline consolidation after the merger of bankrupt AMR Group (AAMRQ) with U.S. Airways (LCC) has many industry experts concerned about rising ticket prices thanks to less competition. And while that’s not necessarily great for the flying public, it is good for airline margins.
That airline industry rallied across 2013, and JBLU stock is up about 55% in the last year. There’s a change that a continued earnings expansion could power even more growth in the new year, and a smaller discount carrier like JetBlue could see a bigger and faster pop than its larger competitors as a result.
If you’re looking for the best cheap stocks under $10 to buy, look no further.
Exco Resources (XCO) is an onshore oil and natural gas play focused mainly on shale operations. Its focus is on using horizontal drilling to extract gas from shale formations in east Texas, north Louisiana, Appalachia and the Permian Basin in west Texas.
XCO is one of many oil and gas small-caps that could be great long-term buys considering the recent underperformance of the energy sector and the hopes of a recovery in 2014. But beware that, at least in the short-term, the momentum is pretty disappointing.
Shares of Exco stock have fallen over 20% in the last year thanks to weaker natural gas prices. In fact, even after the so-called Polar Vortex chilled middle America this month, fuel prices have remained weak.
But the good news is that Exco is the right size for these lean times and should be able to bounce back in 2014. For instance, in fiscal 2012, EXCO reduced drilling rigs from 24 to just 5, and laid off more than 60% of its contractors and one-sixth of its full-time workers. All in all, it slashed capital expenses by more than a billion dollars. The restructuring hit the company hard, but has put it back on track.
Plus, EXCO is another high-yield pick on this list of cheap stocks. It offers a 4% dividend to tide you over as you wait for a recovery in energy prices, demand or both.
BlackRock Kelso Capital Corp. (BKCC) is a business development company, or BDC, which generates revenue from investments in and loans to midsized companies. As that capital generates returns, BlackRock Kelso shares generate big dividends.
Of course, that means BKCC lives and dies by its underlying investments. You can look into its full list of investments here for more detail.
Obviously, nothing is for certain, and an economic downturn would take a bite out of many underlying investments in the BlackRock Kelso portfolio. And it might be a double whammy, since dividends could suffer from underperformance in the underlying investments, too. For instance, distributions went from 43 cents a quarter at the end of 2008 to just 16 cents in 2009 thanks to the downturn.
But it swings both ways — and in good times, BlackRock Kelso really puts the pedal down. The current yield of more than 11% is calculated from 26 cents paid quarterly — yet BKCC paid 32 cents a share as recently as 2010. If the economy turns a corner and more midsize companies look to expand, BlackRock Kelso will benefit handsomely.
Furthermore, higher interest rates in 2014 rates may mean better margins on BKCC loans and thus bigger profits.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.
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