This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Low-Cost Tech Stocks: Options on Survival

When you look to buy a tech stock trading between $1 and $3, you have to be clear that you're buying shares in a potential bankruptcy. Stocks in this category are option plays on survival, and you should buy them only if you can afford to lose 100% of your money, as stocks become worthless at bankruptcy.

Keep in mind that if you buy a stock option, that option expires worthless at its expiration date. In the case of buying a stock trading under three bucks, there is no expiration date, but it is worthless on bankruptcy, so the price you pay is the premium.

My fundamental model shows that technology is now 14.4% undervalued, with health care the only other undervalued sector at 4.2%. All other sectors are overvalued, with energy 9.7% overvalued after getting the most investor attention for much of 2005.

This is an environment where some speculation on low-priced technology stocks should be considered, and I highlight three potential survivors below.

Demand for upgrades in broadband and related Internet protocol applications should help Lucent and Ciena survive. Increased demand for secure management software, on modernized networks, should help Actuate.

Here are my screenings for these three potential survivors. One note: I am providing a "buy zone" for each without upside price targets. A rule of thumb is to book 50% of the gain if the stock doubles and keep the balance of the position, hoping for the stock to return to its fair value.

Lucent Technologies, by my models, is 73.4% undervalued, making its fair value $10.98. The weekly chart profile is neutral, suggesting the stock is in a trading range. The low end of the range should be between my weekly value pivots at $2.76 and $2.92. (A value pivot is a value level that did not hold on weakness and is now acting as a magnet as buyers and sellers battle for control; a value level is a price at which my models project that buyers will emerge.)

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,985.61 +78.99 0.47%
S&P 500 1,972.83 +9.12 0.46%
NASDAQ 4,419.0340 +27.5710 0.63%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs