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5 Stocks Under $10 Hedge Funds Love

Stocks in this article: MTGKOGRADBIOFSIRI

DELAFIELD, Wis. ( Stockpickr) -- It's that time of year again when Wall Street's biggest players report their holdings to the public through 13F filings. Hedge funds and other large asset managers have filed all of their 13F forms with the Securities and Exchange Commission for the second quarter. These filings show which positions some of the smartest money managers are adding to and which stocks they are taking new positions in.

>>5 Stocks Poised for Breakouts

For the purpose of this piece, I want to focus on some low-priced speculative stocks that trade below $10 a share that the biggest players are jumping into here. These low-priced companies could have tremendous upside since some of the smartest guys in the game have deiced to take significant stakes per the latest filings. These names could be attractive at current levels if these managers have found an undervalued situation and their timing is right. Of course, these low-priced stocks also hold a great deal of risk, so investors need to manage risk accordingly.

Managing risk is important no matter what stock you're trading, but it's especially important in under-$10 names since they tend to be more volatile. When managing risk, it's important to use proper position sizing and to cut losses small if the trade goes against you. Remember, you can always get back into a stock at anytime if your first trade doesn't work out, so make sure to trade with the trend and manage that risk.

>>5 Toxic Stocks You Should Sell

Stocks that trade below $10 a share are highly speculative in nature. Many mutual funds don't even allow their managers to own stocks that trade below $5 a share since the risk is considered too great. That said, hedge funds can own whatever they want, and if they see value in a low-priced stock they will jump in with zero fear. They might know something the average investor doesn't, or they might have done extensive research that lead them to take a position in an under-$10 name. Whatever the reason, it's never a bad idea to put the under-$10 names the whales are getting into on your watchlist.

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