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Stocks Under $10 With DavidPeltier

Stocks Under $10 Weekly Roundup

By David Peltier | 05/22/15 - 04:42 PM EDT

Not even a Friday afternoon speech from Fed Chair Janet Yellen could do much to get U.S. stocks out of the narrow trading range we’ve seen the past four sessions. Trading volume dried up ahead of Monday’s Memorial Day holiday and the Russell 2000 index, the benchmark of the model portfolio, ticked higher on the week and added to recent gains.

We used a pullback in Active Power (ACPW) to add to our position on Thursday. We’d also consider adding to our positions in Martha Stewart Living Omnimedia (MSO) and Unilife (UNIS) on the next market pullback.

One potential new name for the model portfolio that has appeared on our radar screen is Merge Healthcare (MRGE). Shares of the medical software producer have fallen 25% from recent highs, even though the company posted better- than-expected earnings last month.

Next week’s trading will be shortened by Monday’s holiday, but we’ll still have a lot of economic data to digest. Tuesday offers several pieces of housing data, the purchasing managers’ index and durable goods orders. On Friday, we’ll get a revision to first-quarter GDP, with economists predicting a decline to a negative reading.

As a reminder:

-- A Game Breaker is going to change the landscape of an industry, as Intel (INTC), Microsoft (MSFT) and Wal-Mart (WMT) did in their respective sectors. Investors can make big money in these stocks by getting in before the crowd.

-- Inflection-Point stocks have a broken business model that's on the mend but have yet to be recognized by the market. Investors who recognize a turnaround early can pocket strong returns.

-- Stealth Stocks are often names unknown to the general public but can be hugely profitable investments -- especially when they have catalysts to boost their share prices.

Also, Ones are stocks we would buy at their current quotes. Twos are stocks that we would buy on a pullback and Threes are names that we would sell into strength.

ONES

Active Power (ACPW; $2.14; 3,350 shares; 3.95% of the model portfolio; Game Breaker; $4.75 price target): Active Power's flywheel energy technology keeps its customers' mission-critical processes up and running. Its hardware uses half as much space as that of existing technologies, but it generates twice as much power. We bought 300 shares on Thursday, as the stock pulled back fractionally this week. Management has three solid quarters under its belt and we believe the company can move back toward profitability in the coming quarters.

Atmel (ATML; $8.85; 1,000 shares; 4.87%, Inflection Point; $10 price target): The company makes microcontrollers used in electronics. The shares added nearly 4% to recent gains this week. As management continues to expand margins in the coming quarters, we believe the stock can move into the double digits.

Ballantyne Strong (BTN; $4.51; 2,650 shares; 6.58%; Stealth Stock; $6.25 price target): The company distributes digital movie projectors and manufactures screens and lighting equipment for theaters. The stock ticked lower this week. We believe the new management team can unlock value in the coming quarters.

Sonus Networks (SONS; $7.73; 660 shares; 2.81%; Inflection Point; $26.25 price target): The company makes communications equipment, including session border controllers and diameter signal controllers. It was a quiet week for the shares, which ticked higher. As management integrates its restructuring plan in the coming quarters, we believe the stock can trade back up toward the double digits.

Standard Pacific (SPF; $8.35; 750 shares; 3.45%; Inflection Point; $11 price target): This homebuilder generates the majority of its revenue in California. The stock ticked higher this week and added to recent gains. The company has strong pricing power and we maintain that shares can move into the double digits by the end of the year.

Synovus Financial (SNV; $29.05; 264 shares; 4.22%; Inflection Point; $33.25 price target): This Georgia- based bank operates branches throughout the Southeast. The shares added more than 2% to recent gains this week. We believe the company can continue to deliver above- average growth in the coming quarters.

Yamana Gold (AUY; $3.78; 1,350 shares; 2.81%; Inflection Point; $12.50 price target): This gold-and- copper exploration company operates seven mines and several ongoing development projects in Brazil, Argentina and Chile. The stock fell 4% this week, along with the underlying price of gold. That said, we believe management will continue to focus on maximizing margins in the coming quarters.

TWOS

Builders FirstSource (BLDR; $12.60; 600 shares; 4.16%; Inflection Point; $17 price target): The company distributes materials to homebuilders in the southern U.S. The shares ticked lower this week, despite a better outlook for housing starts. As management integrates the Probuild merger in the coming quarters, we believe the stock can move up toward the mid-teens.

Cott (COT; $9.60; 950 shares; 5.02%; Stealth Stock; $10 price target): Cott produces and distributes soft drinks, noncarbonated beverages and bottled water, primarily focusing on private-label items for major retailers. The stock added fractionally to recent gains this week, along with the broader market. We believe the company will continue to sustain its attractive 2.5% dividend yield with solid cash flow.

Huntington Bancshares (HBAN; $11.26; 600 shares; 3.72%; Inflection Point; $13 price target): This Ohio- based bank operates more than 600 branches across six states. The shares added fractionally to recent gains this week. We believe the company can continue to gain market share in the coming quarters.

Martha Stewart Living Omnimedia (MSO; $5.16; 725 shares; 2.06%; Inflection Point; $7 price target): The company operates in the home-goods segment, publishing magazines, producing broadcasts and licensing products to retailers. The stock rebounded fractionally this week. We'd consider adding to our position below $5, as we believe management can continue to unlock value from Martha Stewart's core brands.

McDermott (MDR; $4.67; 800 shares; 2.06%; Inflection Point; $11.50 price target): This engineering and construction firm focuses on building and designing offshore oil and natural gas facilities. The shares bounced back fractionally this week. We believe management can continue to turn the business around in the coming quarters.

ON Semiconductor (ON; $12.66; 500 shares; 3.49%; Stealth Stock; $15 price target): The company makes analog, standard logic and discrete semiconductors for use in data and power management. It was a quiet week for the stock, which ticked higher. End-market demand remains strong and we believe shares are attractively valued at 13x expected full-year earnings.

Pacific Sunwear (PSUN; $1.71; 3,850 shares; 3.60%; Inflection Point; $4 price target): This specialty retailer operates more than 500 stores in the U.S., selling surf- and skating-style apparel to teens and young adults. The shares fell 11% this week, ahead of the upcoming quarterly report on May 28. Earnings in the retail sector have been a mixed bag this quarter, but we believe the company has continued to outperform its peers. We'd consider buying 300 or more shares, once we get a look at the results.

SandRidge Energy (SD; $1.23; 1,600 shares; 1.08%; Inflection Point; $8 price target): The company explores for natural gas and oil in the U.S., primarily onshore. It was a volatile week for the stock, which rebounded 4%. We believe SandRidge appears oversold, relative to the underlying price of oil.

TherapeuticsMD (TXMD; $6.50; 1,100 shares; 3.94%; Game Breaker; $9.50 price target): The company develops hormone-replacement medicines for women. The shares ticked lower this week. We maintain that TherapeuticsMD has an attractive clinical pipeline, with multiple potential catalysts.

Unilife (UNIS; $2.47; 2,450 shares; 3.33%; Game Breaker; $6.50 price target): This manufacturer of retractable and prefilled syringes offers products with convenience, safety and comfort advantages. The stock dropped 17% this week. We'd buy 200 to 300 shares on the next market pullback, as the company is ramping up production and will likely announce new pharmaceutical partnerships in the coming quarters.

Vantage Drilling (VTG; $0.37; 6,000 shares; 1.22%; Inflection Point; $2.25 price target): This offshore driller contracts its rigs for the exploration of oil and natural gas. The shares lost 11% this week on little news. Even so, the company's fleet is largely booked for the remainder of the year and management continues to pay down debt.

Whiting Petroleum (WLL; $33.74; 123 shares; 2.29%; Inflection Point; $51 price target): The company explores for oil and gas in the Permian Basin, Williston Basin and Green River Basin. The stock moved fractionally lower this week, even though Whiting was upgraded to Buy on Tuesday at Global Hunter. We maintain the company can trade back up toward $40 in the coming quarters.

Zix (ZIXI; $4.61; 2,250 shares; 5.71%; Stealth Stock; $5.75 price target): Zix is a leading producer of email-encryption software that enables doctors to automatically send information to pharmacies. The shares ticked lower this week. That said, the company has a lot of sales momentum and we maintain the stock can move over $5 in the coming months.

Regards,

David Peltier & TheStreet Research Team

Accumulating Active Power on Weakness
Stocks in Focus: ACPW

The stock is down 20% from its March highs and this will improve our cost basis.

05/21/15 - 03:12 PM EDT
Reminder -- Send Us Your Stocks Under $10 Feedback!

Please fill out our brief survey.

05/20/15 - 12:57 PM EDT
Housing Report Boosts Portfolio Names
Stocks in Focus: BLDR, SPF

Builders FirstSource and Standard Pacific are benefiting from positive April housing data.

05/19/15 - 02:42 PM EDT
Stocks Under $10 Weekly Roundup

This week, we added to one position after a pullback and are looking to do the same with others.

05/22/15 - 04:42 PM EDT

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Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Stocks Under $10 Holdings

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry Trade Now
ATML 4.87% Electronics
AUY 2.81% Metals & Mining
SNV 4.22% Banking
SONS 2.81% Telecomm
SPF 3.45% Materials & Construction

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry Trade Now
BLDR 4.16% Materials & Construction
COT 5.02% Food & Beverage
HBAN 3.72% Banking
MDR 2.06% Energy
MSO 2.06% Media
ON 3.49% Electronics
PSUN 3.60% Retail
SD 1.08% Energy
VTG 1.22% Energy
WLL 2.29% Energy
ZIXI 5.71% Computer Software & Services