7 High-Profile Dollar Stocks to Watch in 2010

“I’d buy that for a dollar!” That was the comedic refrain from the 1980’s sci-fi film “RoboCop.” The phrase now has become urban slang for something that’s both great, and highly desirable. Of course, as investors, we’re all looking for great stocks. Many of us also are looking for great stocks trading around $1 per share.

Why should we look at stocks trading for about a buck? Well, because these stocks have the potential to get very hot, very fast.

So, which are the top penny stocks to watch, and what are their respective outlooks for 2010? Let’s take a closer look at seven stocks trading for around $1 a share.

Dollar Stock #1 – Ambac Financial Group (ABK)

Bond insurer Ambac Financial Group (ABK) faces a lot of headwinds as it attempts to breathe the $1-plus air. Insuring municipal bonds became very difficult in 2008 and for much of 2009, and the company now faces exposure to a bankruptcy of The Las Vegas Monorail Co., which could cost it up to $1.16 billion in liabilities. The company also faces a potential delisting by the NYSE due to the fact that its shares now trade below $1. But despite the negatives, Ambac’s credit rating was upgraded in early December by Standard & Poor’s. The rating agency cited improved financial conditions as the reason for the upgrade. ABK shares spiked on the news, proving buyers still are willing to jump back into the stock on any tidbit of good news.

Dollar Stock #2 – Blockbuster (BBI)

You’ve probably been to a Blockbuster (BBI) store to rent a movie, but chances are the last time you were at that store was several years ago. To be certain, it’s been a tough slog for the company of late. Debilitating competition from cable companies offering pay-per-view films and online DVD pioneer NetFlix (NFLX) have melted the value of the shares over the last several years. Perhaps the only hope for Blockbuster is if they are able to reinvent themselves as a go-to delivery agent for movie delivery. That’s the company’s plan, but making that plan a reality — along with getting their share price back above $1 — will be an epic task.

Dollar Stock #3 – E*Trade Financial Corporation (ETFC)

Discount brokerage E*Trade Financial Corporation (ETFC) was the victim of a bad choice to get into the risky loan business by acting as the end-user banker. They were saved by their deal with Citadel, and since then the company has definitely improved its operations. But E*Trade still has some precarious loan exposure, and they still face the possibility of big write downs from those loans. One possibility that could drive the shares substantially higher is a buyout. The company’s 2.7 million brokerage accounts, and 4.5 million total accounts, are very attractive to a bigger suitor, and a buyout deal could be just what the doctor ordered for this stock in 2010.

Dollar Stocks #4-5 – Fannie Mae (FNM) and Freddie Mac (FRE)

These two disgraced government sponsored agencies (GSEs) are now complete wards of the state, and they’re essentially in government conservatorship. The feds are keeping Fannie Mae (FNM) and Freddie Mac (FRE) alive, for now, but I expect these two quasi-GSEs to face huge fiscal challenges going forward, as even an improving housing market won’t be enough to offset the high delinquency rate on the loans they hold. Unless something unusually bullish happens in the housing space, it will be tough for these stocks to swim away from the $1 harbor.

Dollar Stock #6 – Level 3 Communications (LVLT)

Internet networking services firm Level 3 Communications (LVLT) recently reaffirmed its profit forecast for 2009. It also announced it was looking to buy back some of its debt securities. The company plans to fund the buyback by selling $640 million in new notes that will come due in 2018. This offering will bring down Level 3’s interest expenses, and it will push out the bond maturity schedule. Unfortunately, Level 3 will still be left with a high debt-to-equity ratio after the deal. But if Level 3 can improve its earnings and take advantage of the seemingly insatiable need for more and more Internet services, the stock could be in for a nice move higher in 2010.

Dollar Stock #7 – Sirius XM Radio (SIRI)

Once a Wall Street darling, Sirius XM Radio (SIRI) nearly fell into oblivion a year ago, dropping to just 6 cents in January 2009. The shares now trade for about 67 cents per share, and it is gains like that which make these low-priced stocks so attractive to investors. Will Sirius rise above $1? Well, if the economy continues improving, and if auto sales start to improve, we could see the shares move higher as the company’s satellite radio service is a premium option offered by many carmakers. One big headwind for Sirius is the rise of Pandora’s Internet radio service, which could take a lot of market share away from Sirius customers if it starts to catch fire.

Article printed from InvestorPlace Media, https://investorplace.com/2010/01/dollar-stocks-to-watch-abk-bbi-etfc-fnm-fre-lvlt-siri/.

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