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Stocks Under $10 With DavidPeltier

 Stocks Under $10

Stocks Under $10 Weekly Summary

BY David Peltier | 09/19/14 - 04:58 PM EDT
Stocks in Focus: ACPW, ATML, AUY, BLDR, BTN, COT, DEPO, EXTR, HBAN, KOG, MDR, MSO, ONNN, PSUN

Market volatility increased this week, as we experienced quadruple-witching options expiration, the rebalance of the S&P 500. For the second straight Friday, a sharp selloff sent the Russell 2000 into negative territory for the week. Once again, the small-cap index (which serves as the benchmark for our model portfolio) underperformed the broader U.S. stock market averages, including the S&P 500.

While not all low-dollar stocks are small-caps, we believe this decline is overdone, so we put some cash to work in the model portfolio this week. We began by initiating a position in Sonus Networks (SONS:Nasadq) on Wednesday. The company makes communications equipment and returned to profitability in 2013. We believe Sonus is at an inflection point and that management can continue to expand the company’s margins in the coming quarters. Next, on Friday, we added to our positions in Active Power (ACPW:Nasdaq), Vantage Drilling (VTG:NYSE) and Yamana Gold (AUY:NYSE). In addition, we raised our rating on Yamana from a Two to a One.

We digested a lot of economic data this week, including the latest report from the Federal Open Market Committee (FOMC).Next week’s calendar is also busy. We’ll get some regional economic readings and housing data in the first half of the week, followed by durable goods orders on Thursday. Friday brings the final revision on second- quarter GDP growth.

As a reminder:

-- A Game Breaker is going to change the landscape of an industry, as Intel (INTC:Nasdaq), Microsoft (MSFT:Nasdaq) and Wal-Mart (WMT:NYSE) did in their 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 that 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:Nasdaq; $1.97; 3,050 shares; 3.26% 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 existing technologies do, but it generates twice as much power. We bought 325 shares on Friday, as the stock set a new low this week. The company’s core business remains strong and we believe the shares have limited downside potential.

Atmel (ATML:Nasdaq; $8.49; 900 shares; 4.14%, Inflection Point; $10 price target): The company makes microcontrollers that are used in electronics. It was a volatile week for the stock, which fell 2%. We believe that management can continue to expand the company’s margins in the coming quarters.

Ballantyne Strong (BTN:Amex; $4.15; 2,500 shares; 5.62%; Stealth Stock; $6.25 price target): The company distributes digital movie projectors and manufactures screens and lighting equipment for theaters. It was a quiet week for the shares, which fell 3%. Ballantyne has a solid balance sheet and we believe the stock deserves to trade at premium to tangible book value.

Builders FirstSource (BLDR:Nasdaq; $6.15; 1,300 shares; 4.33%; Inflection Point; $10.50 price target): The company distributes materials to homebuilders in the southern U.S. The stock lost 4% this week. Builders FirstSource is leveraged to robust activity in its region and we believe that management can continue to expand margins in the coming quarters.

Cott (COT:NYSE; $7.36; 900 shares; 3.59%; 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 shares moved fractionally lower this week. We continue to favor the company for its attractive 3.2% dividend yield.

Extreme Networks (EXTR:Nasdaq; $4.80; 1,350 shares; 3.51%; Inflection Point; $8.75 price target): The company makes Ethernet switches and recently doubled its size with the acquisition of Enterasys Networks. Although the stock dropped 7% this week, we believe the company offers investors growth at an attractive price.

McDermott (MDR:NYSE; $6.34; 975 shares; 3.35%; Inflection Point; $11.50 price target): This engineering-and- construction firm focuses on building and designing offshore oil and natural gas facilities. The stock moved fractionally lower this week on little news. We remain convinced that the new management team is turning the business around so we would add to our position, on the next market pullback.

Pacific Sunwear (PSUN:Nasdaq; $2.00; 3,050 shares; 3.31%; 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. It was a quiet week for the shares, which dropped 3%. We believe the retailer can continue to deliver consistent results in a choppy retail environment.

SandRidge Energy (SD:NYSE; $4.77; 1,450 shares; 3.75%; Inflection Point; $8 price target): The company explores for natural gas and oil in the U.S., primarily onshore. The stock moved 3% lower this week on little news, despite reports of some insiders buying shares on the open market. We agree that SandRidge has limited downside potential, as we expect management can ramp up production and cut costs in the coming quarters.

Sonus Networks (SONS:Nasdaq; $3.76; 1,000 shares; 2.04%; Inflection Point; $5.25 price target): The company makes communications equipment, including session border controllers and diameter signal controllers. We initiated a position on Wednesday by purchasing 1,000 shares.

Standard Pacific (SPF:NYSE; $8.00; 750 shares; 3.25%; Inflection Point; $11 price target): This homebuilder generates the majority of its revenue in California. The shares marked time this week. The company has strong pricing power and we remain convinced the stock can move up toward the double digits in the coming quarters.

Synovus Financial (SNV:NYSE; $24.89; 264 shares; 3.56%; Inflection Point; $33.25 price target): This Georgia- based bank operates branches throughout the Southeast. The shares were little changed this week, even though Raymond James upgraded the stock to Strong Buy from Outperform on Friday. The current interest rate environment will likely continue to favor the banks and we believe that Synovus can post above-average growth in the coming quarters.

TherapeuticsMD (TXMD:NYSE; $5.30; 1,925 shares; 5.53%; Game Breaker; $9.50 price target): The company is developing hormone-replacement medicines for women. The shares gave back gains from last week and lost 15%. Even so, TherapeuticsMD has an attractive clinical pipeline, with multiple potential catalysts.

Yamana Gold (AUY:NYSE; $6.75; 1,125 shares; 4.12%; 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. We bought 100 shares on Friday, as the stock fell 7% this week. We also raised our rating on the name from Two to One. The underlying price of gold appears to have stabilized and we believe management can post solid growth in the company’s core mining assets.

TWOS

Depomed (DEPO:Nasdaq; $14.72; 250 shares; 1.99%; Game Breaker; $15.75 price target): The company markets specialty drugs around its oral drug-delivery system, Acuform, which are used to treat Type 2 diabetes as well as post-shingles pain. The shares added fractionally to recent gains this week. Depomed received confirmation from the Food and Drug Administration on Wednesday that its Gralise product will receive seven years of patent exclusivity as an orphan drug. We assert that the stock can trade up toward our price target by the end of the year.

Huntington Bancshares (HBAN:Nasdaq; $10.08; 600 shares; 3.28%; Inflection Point; $11 price target): This Ohio- based bank operates more than 600 branches across six states. The shares ticked higher and added to recent gains this week, as there were few surprises in the company’s stress test results, which were released on Thursday. Even so, Huntington has nearly doubled from our average cost-basis and we would consider booking profits into the next market rally.

Martha Stewart Living Omnimedia (MSO:NYSE; $3.98; 1,350 shares; 2.91%; Inflection Point; $5.75 price target): The company operates in the home-goods segment, publishing magazines, producing broadcasts and licensing products to retailers. The stock dropped 4% this week on little news. We believe that the shares are attractive to purchase below $4, as management will continue to unlock value from the company’s core brands in the coming quarters.

ON Semiconductor (ONNN:Nasdaq; $9.78; 700 shares; 3.71%; Stealth Stock; $11 price target): The company makes analog, standard logic and discrete semiconductors for use in data and power management. The stock rebounded fractionally this week. We remain certain that the stock offers value, as it is trading at 10x expected 2015 earnings.

Unilife (UNIS:Nasdaq; $2.46; 2,350 shares; 3.13%; Game Beaker; $6.50 price target): This manufacturer of retractable and prefilled syringes offers products with convenience, safety and comfort advantages. The stock dropped 4% this week on little news. Even so, we believe that management will continue to announce new pharmaceutical partnerships in the coming quarters.

Vantage Drilling (VTG:Amex; $1.50; 6,400 shares; 5.20%; Inflection Point; $2.25 price target): This offshore driller contracts its rigs for the exploration of oil and natural gas. We bought 500 shares on Friday, as the stock fell 11% this week. Even so, the underlying price of crude oil appears to have stabilized. Vantage’s fleet is fully booked for the next couple of quarters and we believe that the stock can rebound by 20% by the end of the year.

Zix (ZIXI:Nasdaq; $3.64; 2,050 shares; 4.04%; Stealth Stock; $5.75 price target): The company is a leading producer of email-encryption software that enables doctors to automatically send information to pharmacies. The shares pulled back 8% this week, on little news. Even so, Zix has a lot of sales momentum and we believe the stock can trade up toward $5 in the coming quarters.

THREES

Kodiak Oil and Gas (KOG:NYSE; $14.04; 300 shares; 2.28%; Inflection Point; $17 price target): The company explores for oil and gas in the Williston Basin and the Green River Basin. The shares moved 4% lower this week. Even so, underlying energy prices appear to have stabilized and we believe its acquisition of Whiting Petroleum (WLL:NYSE) makes strategic sense.

Swift Transportation (SWFT:NYSE; $20.27; 125 shares; 1.37%; Inflection Point; $27 price target): This trucking company transports goods throughout the U.S. and Mexico. It was a quiet week for the stock, which lost 4%. That said, we believe management can continue to deliver consistent growth in the coming quarters.

Regards,

David Peltier & the TheStreet Research Team

Adding to Active Power
Stocks in Focus: ACPW

The stock is down quite a bit this year but we continue to believe in the growth potential of the company's technology.

09/19/14 - 01:50 PM EDT
Building Up Two Positions
Stocks in Focus: AUY, VTG

We are putting some cash to work this morning by adding shares to Yamana Gold and Vantage Drilling.

09/19/14 - 10:28 AM EDT
Tuning In to Sonus Networks
Stocks in Focus: SONS

We believe this communications name is a company on sale and the stock is on the cusp of a positive inflection point.

09/16/14 - 03:21 PM EDT
Stocks Under $10 Weekly Summary
Stocks in Focus: ACPW, ATML, AUY, BLDR, BTN, COT, DEPO, EXTR, HBAN, KOG, MDR, MSO, ONNN, PSUN

We put some cash to work in the model portfolio this week, initiating a new position and adding shares to two existing holdings.

09/19/14 - 04:58 PM EDT

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DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Stocks Under $10 Holdings

Stocks we would buy right now

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
ATML 4.14% $8.32 $7.17 15.99%
BLDR 4.23% $5.88 $6.12 -3.94%
BTN 5.80% $4.20 $4.45 -5.54%
COT 3.63% $7.29 $7.69 -5.15%
EXTR 3.47% $4.65 $5.35 -13.04%
PSUN 3.17% $1.88 $2.80 -32.95%
SNV 3.58% $24.54 $19.37 26.69%
TXMD 5.21% $4.90 $4.88 0.47%

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
DEPO 2.08% $15.03 $7.49 100.61%
HBAN 3.33% $10.04 $5.18 93.92%
MSO 2.96% $3.96 $2.97 33.35%
ONNN 3.72% $9.60 $7.51 27.90%
SPF 3.22% $7.76 $7.89 -1.66%
UNIS 3.08% $2.37 $3.02 -21.40%
ZIXI 4.07% $3.59 $3.26 10.12%

Stocks we would sell on strength

Symbol % Portfolio
Weighting
Current
Price
Avg.Cost
Basis
% Gain/
Loss
KOG 2.26% $13.60 $9.71 40.01%
SWFT 1.36% $19.73 $8.51 131.84%

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