Investing in Low-Priced Stocks

We make Inflection Point plays when we see a broken business model on the mend, but without the participation of the stock. Think of Nextel (NXTL Quote), which was trading at less than $5 a share in 2002. The company was buried in debt, and no one wanted to own the shares. Nextel CEO Tim Donahue remedied the company's problems; business improved and the stock traded as high as $29 this year. Investors who recognized Nextel's rebound early on pocketed strong returns. We believe this success can be replicated with other stocks.

There are also times when we come across a stock that is under Wall Street's radar, with analysts and investors simply ignoring the fundamental strength underlying the business. These Stealth Stocks are often unknown names to the general public but can be hugely profitable, especially if they score well in our Alpha component. A perfect example of a Stealth Stock is OraSure (OSUR Quote), which makes diagnostic-testing devices and wart-removal products. We added the stock to our model portfolio before anyone had ever heard of it, and sold shares for a 30% gain over a one-month period after the company received an FDA approval for its HIV 1-2 oral fluid test and the rest of the Street jumped on board.

We pride ourselves on being in constant contact with readers. We share our thought processes and the factors that go into our decision making, and are constantly corresponding, via email, with readers who have specific questions on what we are thinking or saying. We believe this takes away some of the angst from investing in the Under $10 space and enables you to become a better investor.

P.S. Remember, stocks priced under $10 have the potential to move quickly. So, you might want to get our current recommendations now with a free trial to TheStreet.com Stocks Under $10.