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Stocks Under $10 With DavidPeltier

Stocks Under $10 Weekly Roundup

By David Peltier | 07/02/15 - 04:36 PM EDT

It was a short but volatile week for stocks, which dropped about 3%. As the calendar turned to July and the beginning of the third quarter, traders had to digest a Greek debt default and its pending referendum vote, and lower-than-expected June jobs report. As a reminder, the U.S. markets are closed on Friday, in observance of the July 4 holiday.

We used the weakness to add to our positions in Pacific Sunwear (PSUN:Nasdaq) and Sonus Networks (SONS:Nasdaq). We also continue to research potential new names for the model portfolio, as we're holding an above-average cash position. Two new technology names that appeared on our radar screen this week are Axcelis (ACLS:Nasdaq) and Dot Hill (HILL:Nasdaq).

As we look forward to next week, Alcoa (AA:NYSE) kicks off the second-quarter earnings season on Wednesday. As a reminder for new readers, we provide a full preview of each company's numbers in the model portfolio, including a scorecard of consensus expectations and what to look for on the conference call. Once we get a chance to digest the results, we circle back and alert readers if any action is necessary.

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; $2.02; 3,350 shares; 3.76% 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. The stock fell 3% this week, along with the broader market. That said, the company has a lot of operating momentum and is attractive to buy on the next market pullback.

Ballantyne Strong (BTN; $4.73; 2,650 shares; 6.96%; Stealth Stock; $6.25 price target): The company distributes digital movie projectors and manufactures screens and lighting equipment for theaters. The shares rebounded 2% this week. We maintain the new management team can unlock value in the coming quarters.

Merge Healthcare (MRGE; $4.62; 875 shares; 2.25%; Stealth Stock; $7 price target): The company produces software for medical imaging and other health care needs. The stock lost 5% this week, even though management announced a partnership with Toshiba on Monday. We continue to believe that Merge offers growth at an attractive price.

Pacific Sunwear (PSUN; $1.14; 5,900 shares; 3.74%; 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. We bought 500 shares on Tuesday, as the stock fell 8% this week. We believe the company was a victim of window-dressing as traders looked to trim losing positions ahead of the quarter's end. That said, we believe Pacific Sunwear's sales can rebound in the second half of the year.

Sonus Networks (SONS; $6.79; 760 shares; 2.87%; Inflection Point; $26.25 price target): The company makes communications equipment, including session border controllers and diameter signal controllers. We bought 100 shares on Tuesday, as the stock lost 12% this week. We believe Sonus was victim of the same selling pressure that hurt Pacific Sunwear this week. We maintain that management can cut costs and turn the business around in the coming quarters.

Standard Pacific (SPF; $8.90; 750 shares; 3.71%; Inflection Point; $11 price target): This homebuilder generates the majority of its revenue in California. It was a quiet week for the shares, which declined fractionally. The company has strong pricing power and we continue to believe the stock can move into the double digits in the coming months.

Yamana Gold (AUY; $2.96; 1,750 shares; 2.88%; 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 dropped 2% this week. Even so, we believe gold will be buoyed by equity volatility. In the meantime, management is cutting costs and we'd consider adding to our position on the next market pullback.

TWOS

Atmel (ATML; $9.71; 800 shares; 4.31%, Inflection Point; $12 price target): The company makes microcontrollers used in electronics. The shares fell 2% this week. We believe management can continue to expand margins in the coming quarters.

Builders FirstSource (BLDR; $12.67; 600 shares; 4.22%; Inflection Point; $17 price target): The company distributes materials to homebuilders in the southern U.S. The stock moved 5% lower this week on little news. We believe the pending ProBuild acquisition will materially add to future earnings.

Huntington Bancshares (HBAN; $11.35; 450 shares; 2.84%; Inflection Point; $13 price target): This Ohio- based bank operates more than 600 branches across six states. The shares ticked lower this week. The company is leveraged to higher interest rates and sports a solid 2.1% dividend yield.

Martha Stewart Living Omnimedia (MSO; $6.31; 850 shares; 2.98%; Inflection Point; $7 price target): The company operates in the home-goods segment, publishing magazines, producing broadcasts and licensing products to retailers. The stock dropped fractionally this week. Martha Stewart will likely remain range-bound until we hear about potential competing offers to the Sequential Brands (SQBG:Nasdaq) merger bid.

McDermott (MDR; $5.20; 800 shares; 2.31%; Inflection Point; $11.50 price target): This engineering and construction firm focuses on building and designing offshore oil and natural gas facilities. The shares moved 4% lower this week, along with underlying energy prices. Even so, we believe management can continue to turn the business around in the coming quarters.

ON Semiconductor (ON; $11.46; 400 shares; 2.55%; Stealth Stock; $15 price target): The company makes analog, standard logic and discrete semiconductors for use in data and power management. The stock lost 4% this week on little news. We maintain that ON Semiconductor is attractively valued at 10x expected 2016 earnings.

SandRidge Energy (SD; $0.76; 2,600 shares; 1.10%; Inflection Point; $8 price target): The company explores for natural gas and oil in the U.S., primarily onshore. The shares dropped 20% this week, as energy prices fell. We believe the move was largely technical, given the quarter's end and maintain that SandRidge is better hedged and has relatively less debt than its peers.

Synovus Financial (SNV; $30.53; 225 shares; 3.82%; Inflection Point; $33.25 price target): This Georgia- based bank operates branches throughout the Southeast. The stock fell 2% this week. We believe the company can continue to deliver above-average growth in the second half of the year.

TherapeuticsMD (TXMD; $8.24; 900 shares; 4.12%; Game Breaker; $9.50 price target): The company develops hormone-replacement medicines for women. It was a volatile week for the shares, which ticked higher. We maintain that TherapeuticsMD has an attractive clinical pipeline, with multiple potential catalysts.

Unilife (UNIS; $2.00; 3,050 shares; 3.39%; Game Breaker; $6.50 price target): This manufacturer of retractable and prefilled syringes offers products with convenience, safety and comfort advantages. The stock dropped 6% this week on little news. We believe the company can continue to ramp production and sign new pharmaceutical partnerships in the coming quarters.

Vantage Drilling (VTG; $0.17; 11,000 shares; 1.03%; Inflection Point; $2.25 price target): This offshore driller contracts its rigs for the exploration of oil and natural gas. The shares bounced back 2% this week, even though the Baker Hughes U.S. rig count moved higher for the first time since December. The company's fleet remains largely booked and management continues to pay down debt.

Whiting Petroleum (WLL; $31.33; 123 shares; 2.14%; Inflection Point; $51 price target): The company explores for oil and gas in the Permian Basin, Williston Basin and Green River Basin. The stock fell 11% this week, along with underlying energy prices. That said, we maintain the company can boost production growth in the coming quarters.

Zix (ZIXI; $5.12; 1,700 shares; 4.83%; Stealth Stock; $6.25 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. Even so, the company is carrying a lot of sales momentum in the second half of the year.

THREES

Cott (COT; $9.82; 700 shares; 3.82%; Stealth Stock; $12 price target): Cott produces and distributes soft drinks, noncarbonated beverages and bottled water, primarily focusing on private-label items for major retailers. The stock dropped 2% this week. We continue to favor the company for its attractive 3.4% dividend yield.

Regards,

David Peltier & TheStreet Research Team

Adding to Pacific Sunwear and Sonus Networks
Stocks in Focus: PSUN, SONS

We'll put cash to work on weakness.

06/30/15 - 01:09 PM EDT
Drawing Up a Potential Shopping List
Stocks in Focus: ACPW, ON, PSUN, SONS, UNIS, AUY

With Greece-related weakness and our large cash position, we'll consider putting money to work.

06/29/15 - 03:24 PM EDT
We're Buying More SandRidge, Unilife
Stocks in Focus: SD, UNIS

Putting cash to work while stocks are down.

06/26/15 - 11:46 AM EDT
Stocks Under $10 Weekly Roundup

This week, we added to 2 positions in a volatile market as earnings season drew nearer.

07/02/15 - 04:36 PM EDT

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Markets

DOW 17,683.58 -46.53 -0.26%
S&P 500 2,068.76 -8.02 -0.39%
NASDAQ 4,991.94 -17.2740 -0.34%

Stocks Under $10 Holdings

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry Trade Now
ACPW 3.58% Industrial
AUY 2.90% Metals & Mining
BTN 7.15% Consumer Durables
MRGE 2.26% Computer Software & Services
PSUN 3.54% Retail
SONS 2.73% Telecomm
SPF 3.71% Materials & Construction

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry Trade Now
ATML 4.30% Electronics
BLDR 4.26% Materials & Construction
COT 3.87% Food & Beverage
HBAN 2.86% Banking
MDR 2.25% Energy
MSO 2.95% Media
ON 2.52% Electronics
SD 1.02% Energy
SNV 3.86% Banking
TXMD 4.14% Drugs
UNIS 3.50% Health Services
VTG 1.00% Energy
WLL 2.04% Energy
ZIXI 4.86%