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
TheStreet Open House

2 Pair Trades for Stocks Under $5

Long Pilgrim's Pride/Short Pulte Group

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

If there ever was an industry teetering on the edge it would be the homebuilding sector. This already beaten up industry cannot afford a double dip recession. Companies in the space have lost much and will likely lose more if the economy contracts.

I'll short Pulte Group (PHM) in a pair trade. The company is on pace to lose 22 cents per share this year. Analysts are expecting the company to make 19 cents per share in 2012. Those numbers are likely to be too optimistic for an economy on the downturn. Shares of Pulte trade for less than book value, but if the company keeps losing money that book value will shrink in a double-dip environment.

Foreclosures are still a major problem for the industry. In a market with too many sellers and not enough buyers Pulte is likely to struggle no matter what the economy does from here. The recovery of the homebuilding sector will take many, many years.

On the long side of this pair trade I would buy long shares of Pilgrim's Pride (PPC). The big chicken company has been hurt by increasing feed costs. At a time when the company is attempting to return to profitability, slimmer margins are painful. Investors have sold the stock hard over the last year with shares dropping from a high of $8.61 per share to its current price of $3.50.

Although Pilgrim's is losing money, a trait I mention earlier as being problematic for a stock trading under $5, I would view this company as more of a defensive play. Consumers will eat poultry no matter what is transpiring in the economy. The volatility of sales and profits are likely to be less with Pilgrim's than other stocks with similar traits. As such, I would look for the company to continue its turn-around and investors to be long this stock in a pair trade.

To see these trades in action, visit the 2 under $5 stock pair trades portfolio on Stockpickr.


Follow Stockpickr on Twitter and become a fan on Facebook.

-- Written by Jamie Dlugosch in Minneapolis.

At the time of publication, author had no positions in stocks mentioned.

Dlugosch is the editor of Penny Stock Winners. He has over 20 years of experience in financial markets including investment banking, equity analysis and research and money management. In addition to being the Editor of Penny Stock Winners, he is also a Contributing Editor of and founder and editor of The Rational Investor.

3 of 3

Select the service that is right for you!

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 17,055.87 -116.81 -0.68%
S&P 500 1,982.77 -11.52 -0.58%
NASDAQ 4,508.6880 -19.0010 -0.42%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

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