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Stocks Under $10 With DavidPeltier

Stocks Under $10 Weekly Summary

By David Peltier | 2016-12-02 16:45:00.0

Investors’ euphoria waned this week, as the broader U.S. stock market averages pulled back from record highs. The Russell 2000 index, the benchmark of the model portfolio, declined 2% this week, which marks the first drop since the election.

We used continued strength in the financial sector to book profits in Huntington Bancshares (HBAN:Nasdaq) and SLM (SLM:NYSE) this week. We also lowered our rating on SLM from One to Two, while raising our price target to $12. In addition, our target on Huntington was raised to $15 a share.

The energy sector was also a big winner this week, as OPEC agreed to cut production for the first time in eight years. We used a 7% rally in McDermott (MDR:NYSE) to realize some gains this week. We also raised our target on the company to $7.50.

On the other hand, technology, especially the semiconductor names, led the broader market lower this week. If we see continued selling in the near term, we’d consider putting some cash to work in our One- and Two-rated names in this area.

We digested a solid November jobs report Friday, which leaves few potential hurdles to de-rail an expected FOMC interest rate hike Dec. 14. In fact, Fed funds futures are currently pricing in a 95% chance of an increase. Looking ahead to next week, it will be relatively quiet on the economic front.

As a reminder:

-- A game-breaker stock is going to change the landscape of an industry, as Intel (INTC:Nasdaq), Microsoft (MSFT:Nasdaq) and Walmart (WMT:NYSE) all did in their respective sectors. Investors can make big money in these stocks by getting in before the crowd does.

-- Inflection-point stocks have broken business models that are 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 I would buy at its current quotes; Twos are stocks that I would buy on a pull back and Threes are names that I would sell into strength. In parentheses, you will find each rundown of the company, including its stock symbol, latest closing price and the percentage that the stock makes up of the model portfolio. For the most up-to-date portfolio results, please click here. www.thestreet.com/k/su/portfolio.html

ONES

CalAtlantic Group (CAA:NYSE; $32.06; 3.37%): This homebuilder is a combination of the former Ryland and Standard Pacific. The stock lost 6% this week on little news. That said, the company has strong pricing power and continues to realize merger synergies. CAA is an inflection-point stock and has a price target of $45.

Jive Software (JIVE:Nasdaq; $3.75; 2.07%): The company provides software for community and social-networking solutions. The shares fell 6% this week, even though management gave an upbeat presentation at an investment conference on Thursday. We’d consider adding to our position on the next market pullback, to improve our average cost-basis. JIVE is a stealth stock and has a price target of $6.50.

GigaPeak (GIG:NYSE; $2.47; 1.84%): The company produces components for wireless and optical networks. The stock dropped 12% this week, as the semiconductor sector helped to lead the market lower. Even so, we continue to find value in GigaPeak at just 11.8x expected 2017 earnings. The GIG is a stealth stock and has a price target of $4.

Teligent (TLGT:Nasdaq; $7.22; 2.59%): The company makes generic pharmaceuticals. Shares pulled back 3% this week, even though Teligent received FDA approval Wednesday for a dermatology lotion. The company has a robust product pipeline and remains on track to triple its annual profit in each of the next two years. TLGT is a stealth stock and has a price target of $10.50.

TherapeuticsMD (TXMD:NYSE; $6.13; 4.09%): The company develops hormone- replacement medicines for women. The stock moved 13% lower this week, as TherapeuticsMD was targeted as a short-sale candidate at an investment conference Tuesday. That said, we continue to believe the company has two attractive clinical products in Phase 3 trials that should achieve several significant milestones in 2017. The company is a game-breaker stock and has a price target of $12.50.

TWOS

Builders FirstSource (BLDR:Nasdaq; $10.57; 2.85%): This firm distributes materials to southern U.S. homebuilders. The shares dropped 10% this week, even though the company was added to the Alpha Generator list at FBR Capital Markets, on Tuesday. The stock remains inexpensive at just 10.5x expected 2017 earnings. BLDR is an inflection-point stock and has a price target of $17.

Huntington Bancshares (HBAN:Nasdaq; $12.94; 3.98%): This Ohio-based bank operates more than 600 branches across six states. We sold 150 shares on Wednesday, as the stock added 3% to recent gains this week. We also raised our price target to $15. We don’t want to be greedy with our gains in the company, even though it is leveraged to a steeper yield curve and sports a solid 2.5% dividend yield. HBAN is an inflection-point stock and has a $15 price target.

ON Semiconductor (ON:Nasdaq; $11.12; 2.57%): This company makes analog, standard- logic and discrete semiconductors for data use and power management. The shares declined 10% this week, along with the broader chip sector. Even so, we maintain that ON Semiconductor is attractive at just 9.6x expected 2017 earnings. It’s a stealth stock with a price target of $15.

SLM (SLM:NYSE; $10.39; 1.60%): The company is a leading provider of student loans. We sold 100 shares on Friday, as the stock added 6% to recent gains this week. We also increased our price target to $12. Management offered a solid outlook at an investment conference on Wednesday and FBR Capital Markets initiated coverage of SLM on Thursday, with an Outperform rating. The company is leveraged to rising interest rates and the student loan industry should face reduced regulatory activity from the Trump administration. SLM is an inflection-point stock with a price target of $12.

Sonus Networks (SONS:Nasdaq; $5.75; 3.10%): This company makes communications equipment, including session-border controllers and diameter-signal controllers. The shares lost 9% this week, on little news. That said, we continue to find value in Sonus at just 2x cash on hand. SONS is an inflection-point stock and has a price target of $12.

Synovus Financial (SNV:NYSE; $39.17; 3.42%): This Georgia-based bank operates branches throughout the Southeast. Shares, which fell modestly this week, were downgraded at Keefe, Bruyette & Woods on Monday from Outperform to Market Perform. We maintain that Synovus can continue to generate above-average growth in 2017. SNV is an inflection-point stock and has a price target of $45.

Unilife (UNIS:Nasdaq; $2.44; 1.35%): This manufacturer of retractable and pre- filled syringes offers products with convenience, safety and comfort advantages. The shares fell 2% this week, along with the broader market. We continue to believe the new management team can get the company back on track in 2017. UNIS is a game-breaker stock and has a $35 price target.

Yamana Gold (AUY:NYSE; $3.03; 1.63%): This gold-and-copper exploration and production company operates seven mines and oversees ongoing development projects in Argentina, Brazil and Chile. The stock rebounded 3% this week and remains an attractive hedge against volatility in the broader market. AUY is an inflection-point stock and has a $6 price target.

Zix (ZIXI:Nasdaq; $4.35; 3.01%): Zix is a leading producer of email-encryption software that enables doctors to securely send information to pharmacies. The stock pulled back 5% this week; however, we believe the company is carrying strong sales momentum into 2017. ZIXI is a stealth stock and has a price target of $6.25.

THREES

Ballantyne Strong (BTN:NYSE; $7.11; 1.92%): This company distributes digital- movie projectors and manufactures screens and lighting equipment for theaters. It was a volatile week for the shares, which moved fractionally higher. We maintain that management can continue to unlock value in the coming quarters. BTN is a stealth stock and has a price target of $7.50.

McDermott International (MDR:NYSE; $6.93; 2.13%): This engineering-and- construction company focuses on building and designing offshore oil and natural gas facilities. We sold 400 shares on Monday, as the stock added 7% to recent gains this week. We also lowered our rating on McDermott from Two to Three, while raising our price target to $7.50. The shares rallied along with the price of oil, which could cause the company to receive more construction orders in 2017. MDR is an inflection-point stock and has a price target of $6.50.

OraSure Technologies (OSUR:Nasdaq; $8.37; 1.93%): This firm makes oral tests for genomics, substance abuse and infectious diseases. The shares moved 6% lower this week, even though management hosted a positive analyst meeting on Tuesday. The company also announced an $18 million contract this week, which is a record for its virus-testing business. OSUR is a stealth stock and has a price target of $10.

Regards,

David Peltier
Portfolio Manager, Stock Under $10

McDermott Is Rising Along With Energy Stocks
Stocks in Focus: MDR

MDR is taking off as oil prices rise on the OPEC production cut announcement Wednesday.

12/01/16 - 11:29 AM EST
Booking Profits in 2 Financial Stocks
Stocks in Focus: HBAN, SLM

We are trimming Huntington Banshares and SLM on strength.

11/30/16 - 10:36 AM EST
TherapeuticsMD's Weakness Is an Opportunity
Stocks in Focus: TXMD

Our research suggests the risk/reward potential is attractive at current levels.

11/29/16 - 10:55 AM EST
Stocks Under $10 Weekly Summary

We booked some profits in Huntington Bancshares and SLM this week and cut our rating on SLM from One to Two.

12/02/16 - 04:45 PM EST

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Chart of I:DJI
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Stocks Under $10 Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry
CAA 0.03372507783302353 Materials & Construction
GIG 0.018378096900472256 Electronics
JIVE 0.02068594251850587 Computer Software & Services
TLGT 0.025934078384751296 Drugs
TXMD 0.040892099455497245 Drugs
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
AUY 0.016325538262977096 Metals & Mining
BLDR 0.028475402547799986 Materials & Construction
HBAN 0.03984016315378098 Banking
IWM 0.1732985520430348 Financial Services
ON 0.025677508555064402 Electronics
SLM 0.015994563182681002 Financial Services
SNV 0.034169456778041236 Banking
SONS 0.03098080693469251 Telecomm
UNIS 0.013522256303818087 Health Services
ZIXI 0.030134126496725755 Computer Software & Services
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Weighting
Industry
BTN 0.019156106423523306 Consumer Durables
MDR 0.021336347036762147 Energy
OSUR 0.01932740527031376 Health Services