5 Cheap Stocks to Trade

Advertisement

Cheap stocks can provide a storehouse of opportunity for those looking to make trades for a solid single or double. If you’re lucky, you might even find a gem that offers up a home run if you either time a trade right, or you have long-term vision for a small company.

technology stocks that pay dividends

It’s important to remember that, just by the math, there’s no actual difference between owning, say, 50 shares of a $1 stock or 1 share of a $50 stock. You still have the same amount invested. However, nominally cheap stocks often find themselves in the crosshairs of traders, and ones on the way down can also find themselves heavy on short interest. Both are potential catalysts for big, sudden jumps.

I also should emphasize that these do not fit into my usual selection of stocks to hold for the long term in a diversified portfolio. These are short-term trades. But that said, you can actually do yourself a favor by trading these within a tax-deferred account such as a rollover IRA, as you can dodge the high short-term capital gains rates.

Here are five trade suggestions for a few cheap stocks where I think the path of least resistance is up, not down. As far as how each stock could run, I can’t offer clear guidance — your amount of risk is up to you. But personally, I’m happy if I can squeeze 10% out of a trade.

Cheap Stocks to Trade: Zynga (ZNGA)

cheap-stocks-to-trade-znga-stockCurrent Price: $5.18

Zynga (ZNGA) is everyone’s favorite mobile gaming company. I think there are interesting long-term prospects here, but right now I’m attracted to the $1.5 billion in cash it has on the books, or almost $2 per share.

Why does that matter? ZNGA shares trade at $5.46, so that’s actually an effective price of $3.46 or so.

Zynga plays in a pretty rough industry in which a constant stream of hits is necessary. That’ll be admittedly more difficult once Candy Crush Saga maker King earns bank on its IPO and has a little more firepower, but Zynga has a capable CEO in Don Mattrick and a recent purchase of NaturalMotion to help bolster its graphics side.

I think a lot of risk is priced in here, and it’s worth a trade.

Cheap Stocks to Trade: Jiayuan.com International Ltd. (DATE)

cheap-stocks-to-trade-date-stockCurrent Price: $7.23

Jiayuan.com International Ltd. (DATE) is a popular Chinese online dating website with about 100 million registered users. The company is profitable and cash flow-positive, which I really want to see out of any Internet investment.

In general, I avoid Chinese stocks as investments, but as a trade, it doesn’t look half bad. It has $233 million in cash, even more in short-term investments and no debt, plus it pays a 3.2% dividend despite having robust growth prospects. This stock is prone to quick moves, and it’s currently on a downswing. A swing back up will happen — it’s just a matter of when.

Cheap Stocks to Trade: ClearOne (CLRO)

cheap-stocks-to-trade-clearone-clro-stockCurrent Price: $11.10

If you’re looking for a common theme so far, I’m choosing companies like ClearOne, Inc. (CLRO) because they have cash and no debt.

ClearOne has about $2.20 per share in cash, and it operates in an arena that isn’t going to go bankrupt in the next 90 days — audio and video conferencing, signage and streaming products across multiple sectors. The company also has three small insider buys in the past half-year or so, which is always a positive sign.

More recently the stock has pulled back from all-time highs around $12, but given the company’s penchant for earnings beats and sudden moves higher, this is again a big mover just waiting to pounce.

Note, though, that CLRO does only trade about 50,000 shares daily, so trade with tight limit orders and stop-losses.

Cheap Stocks to Trade: Fifth Street Finance (FSC)

cheap-stocks-to-trade-fsc-stockCurrent Price: $9.38

Fifth Street Finance (FSC) is what I call a “beaten up and left for dead” trade. This business development company took it on the chin because it reduced its dividend, but I think the selloff was way overdone.

I like Fifth Street’s recent acquisition of Healthcare Finance Group, which makes senior asset-based loans against healthcare equipment and collects great interest from its clients, as well as the fact that FSC hasn’t lost money in 15 years.

With FSC stock barely off its 52-week lows, I think there’s a trade here.

Cheap Stocks to Trade: Annaly Capital Management (NLY)

cheap-stocks-to-trade-nly-stockCurrent Price: $11.12

Annaly Capital Management (NLY) fits roughly the same profile — NLY shares have been pounded as the dividend has plunged in the past few years.

As an mREIT, Annaly plays the arbitrage between borrowing at low rates and collecting higher interest rate payment from its own investments in mortgage-based securities. However, I don’t believe interest rates aren’t going to move much higher in the near-term, so there’s a trade to be made here — the market has mispriced the interest rate risk, and Annaly’s still sky-high 10.8% dividend yield should attract plenty of suitors should we see a sudden clutch for yield.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets @ichabodscranium.


Article printed from InvestorPlace Media, https://investorplace.com/2014/03/cheap-stocks-to-trade/.

©2024 InvestorPlace Media, LLC