Finding the best stocks under $10 per share is no easy task. Inherently, cheap stocks come with bigger risks because they are either very small companies or a big company that has been beaten down to a low price.
But the best cheap stocks do share some common characteristics: a bit of short-term momentum, good long-term outlook and preferably a balance sheet that is in the black and supporting dividend payments.
You can’t find all of these things all the time, of course, but when looking for the best stocks under $10 this is a good checklist to keep in mind.
Most of the 10 picks on this list hit all those marks — and if they don’t, they at least have an especially strong short-term performance or long-term outlook to make up for it.
One sector of the stock market that has big potential in 2014 is regional banks. And among these players, Huntington Bancshares (HBAN) is one of the strongest regional banks on Wall Street.
Broadly speaking, smaller banks can be safer than the big players like Bank of America (BAC) or JPMorgan Chase (JPM) because they aren’t exposed to the same risks of massive lawsuits over subprime mortgages, and they don’t operate aggressive trading desks that could cost them a fortune if the bets go bad.
Consider $13 billion in fines recently paid by JPM as a case study in the kind of pricey risks that come with major financial stocks.
Regional banks like HBAN are pickier with their mortgage exposure and thus safer. And while regional banks are certainly a cyclical play based on stronger business and consumer lending, there’s a brighter outlook for 2014 as unemployment continues to mend.
Throw in a 2.3% dividend for this stock and you’ve got a decent winner under $10 a share.
If you’re looking for a more aggressive play in the financial sector, consider Spain financial player Banco Santander (SAN).
Battered by the downturn in Europe, Santander has had a lot of trouble since 2009 but is finally showing signs of turning around as Spain starts growing once more. Furthermore, Santander has extensive operations in Latin America to fuel growth in addition to being a play on Europe’s recovery.
Adding the international stock like Banco Santander is easy, too, because the company 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 7%, 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% in the last three months 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, the company had a much better second-quarter and said that activity among its leading customers was much better. The 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. 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.
Commodity stocks and materials stocks have been laggards for quite some time thanks to weak industrial demand and soft prices for base metals. But while Alcoa (AA) has bounced around between $8 and $10 since late 2011, there may be signs of a recovery ahead for this battered aluminum giant.
Consider that, after big losses in 2009 and a struggle to turn a profit all the way through fiscal 2012, Alcoa is projecting 70% earnings growth this year and another 30% earnings growth in fiscal 2014.
This is despite very soft aluminum pricing due to a strong dollar depressing commodity prices and weak manufacturing outlooks around the world, particularly in China.
However, China’s economy is still growing at a brisk rate of about 7.5%, Europe is seeing a mild recovery now that it has exited recession, and America continues to slowly improve with each passing month.
AA stock is up about 10% since early October, so there’s hope that the worst is behind this aluminum giant … even if it is no longer a Dow component after getting the boot from this benchmark index in September.
Annaly Capital Management
Interest rates have been rock-bottom since the Great Recession, but that will change in the years ahead. And when it does, Annaly Capital Management (NLY) is the best way to profit from rising rates.
Annaly is well position to profit because it is able to make more money from the loans it services in a higher interest rate environment. Annaly manages real-estate debt, so the amount of money it makes in interest payments rises with interest rates.
Also, Annaly pays a massive dividend of 13% as a result of this structure — passing on much of the interest payments it receives from borrowers directly to its shareholders.
If the housing market does crash a second time, however, Annaly will be in dire straits as all those mortgages go bad. And a decrease in loan portfolio income would probably result in a quick draw-down of NLY’s dividend, doubling investors’ pain.
But considering the cheap share price, the potential for dividends in the short-term as well as appreciation in the long-term under a higher interest rate environment, NLY stock seems like a decent play to consider for more aggressive investors.
Advanced Semiconductor Engineering
Advanced Semiconductor Engineering (ASX) builds and distributes integrated circuits and other electronics. It’s not as sexy as some mobile chipmakers, but thankfully it doesn’t have to be — ASX is simply capitalizing on the general demand for microchips in everything from cars to computers to TVs.
The company is based in Taiwan, close to many Asian electronics manufacturers. And regardless of whether those manufacturers crank out something as hot as the iPhone from Apple (AAPL), the stock will still have a strong baseline simply because of how many high-tech devices exist in the world.
Year-to-date, ASX has underperformed but since August it has tacked on more than 20% thanks to improvement in operations. Also, the diverse business of Advanced Semiconductor makes it a bit more stable in the long haul than a company very reliant on laptops and desktops.
ASX is not a chip designer, so it doesn’t have the same big margins as the companies who create the next hot chip … but it also doesn’t have the same risk. That allows Advanced Semiconductor to keep cranking out products in a reasonable reliable fashion — and support a 3.6% dividend yield as a result.
Exco Resources (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.
Exco 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.
Year-to-date XCO is off about 20% thanks to weaker natural gas prices and a lack of demand.
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 five, 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.
The company also pays a nice 3.7% dividend to tide you over as you wait for a recovery in energy prices, demand or both.
Alpha Natural Resources
Coal stocks are hardly a low-risk or high-popularity investment right now. President Obama continues to hit the sector with harsh regulations for coal-fueled power plants, and the crash in commodity prices means that the coal sector is caught between two very harsh pressures.
But coal remains a huge export from the U.S. and a popular power source in China. That means companies like Alpha Natural Resources (ANR) aren’t going away anytime soon — no matter how much the environmental lobby wishes that it were so.
Alpha Natural Resources is bleeding cash pretty badly, so that’s a huge risk. However, the company was profitable as recently as 2010 and has taken some big steps in recent months to cut costs — including a big reduction in capital expenditures.
This is far from a sure thing, but ANR stock has already regained about 40% in the last three months despite still being in the red year-to-date, so there’s clearly a short-term pop in sentiment.
If that continues, this cheap stock could be a high flier in 2014.
Newspapers are hardly a growth industry, but after such a horrible fall from grace, publisher Lee Enterprises (LEE) may be a decent investment once more.
LEE stock is down almost 90% from its 2007 highs, and down about 40% from early 2010. The reasons are obvious — declining newspaper readership broadly, and the declining margins for news publishers as they trade “print dollars” for “digital dimes.”
But the good news is that after some big losses over the last few years, Lee Enterprises is profitable once more and set to post its best earnings since 2010 — and only its second annual profit since before the Great Recession. As a result, the stock has almost tripled in 2013, going from about $1 a share to more than $3 in just six months.
The stock killed its dividend in 2008 amid the downturn, but there’s a chance that the company could begin some modest form of payout again if it continues to stabilize.
There is admittedly big risk here, because print media is hardly a growth industry, but there is also stability since Lee tends to mostly serve small or midsized markets where the local news business remains very entrenched and part of the community. With about 1,500 daily and weekly newspapers, Lee could be a stable investment with modest upside in the year ahead now that it has “right-sized” its business.
And though Mitsubishi UFJ Financial (MTU) has already tacked on an impressive 55% return since last November, there is still upside as Japan squeezes out a bit more growth and as the yen continues to trade at deep discounts to the Euro or the U.S. dollar.
Though it doesn’t sit well with some investors, a weak currency boosts exports and can increase the corporate profits of businesses that do a lot of business abroad by simple virtue of a more favorable exchange rate.
Furthermore, the hopes of japan actually posting some decent growth — at least, relative to its minimal economic expansion since the late 1990s — could mean increased lending activity for MTU.
Throw in a nice 2.4% dividend and you have a pretty good case for a bargain buy in Mitsubishi Financial.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter at@JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.