In running TheStreet.com Stocks Under $10 service, we regularly take a look at the market with a specific focus on how it affects our sector. We wanted to do that today and to alert you that two new companies have been moved onto our Watch List for possible addition to the Stocks Under $10 model portfolio. (Much of this article was sent earlier to our subscribers. If you would like to see all our alerts and stock picks,
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First, let's examine the market. Following Friday's job data, which showed the fourth straight monthly decline in nonfarm payrolls, the major indices have been quietly trending lower. This may come as a surprise to some investors because the job number handily beat economists' forecasts and could indicate that the downturn in the U.S. economy may be close to easing.
Looking at other economic data from the past week, we saw an Institute of Supply Management (ISM) manufacturing number that was in line with expectations, while the nonmanufacturing number beat estimates. Both were taken as positives by the market, although manufacturing still showed contraction, and nonmanufacturing was barely above the 50 threshold (a reading above 50 indicates expansion, while a reading below 50 indicates contraction).
We agree with the bulls that the current wave of data suggest that while the U.S. economy is sluggish, it is not headed for a deep recession. But the equity market appears to be painting a much brighter picture. For example, despite a prolonged housing slump, a credit crisis that many have been calling the bottom for six months now; record energy prices and a credit market that has severely tightened, the
is down only 4% on the year and down 10% from its all-time high.
Plus, looking at the housing crisis in more detail, the politicians are looking for a quick fix to a problem that will require much more than a wrench. Tighter lending standards likely mean that fewer people will be able to afford homes. Yet the government is looking to bail out borrowers who bought homes they couldn't afford.
Looking at the bigger picture, we believe housing prices have at least 15% more to fall before reaching bottom. However, if housing prices stabilize, the foreclosure rate is still likely to increase, as the costs associated with owning a home (property taxes, oil, cable access, electricity, etc.) continue to rise. Add to that the huge jump in food prices, which continues to eat into consumers' discretionary income.
Our comments are not meant to panic readers, but simply to point out the risks in this market going forward -- which seem to be discounted by the media and many financial publications that tend to find positives for every negative piece of data. So, while the total 3.25% cut in short-term rates by the
since September and the recent stimulus package provide both short-term and long-term catalysts, it's important to highlight both the positives and the negatives, and then determine if the reward is worth the risk.
Turning to our Watch List, this week we have added
( ESLR) and
Shares of Evergreen, which manufactures and sells solar panels, were recently trading around $8.80 -- down more than 50% from its highs -- mostly due to supply concerns. But the company is in the process of manufacturing its own solar panel facility, which will increase capacity by the end of this year.
As with most small-cap alternative energy plays, this stock's fundamentals are sketchy; the company has negative profits and cash flow, but management expects to turn a profit in 2009. This is a high risk/high reward situation, and we need to do more homework before committing any cash.
Next up is Ford, which has been on a tear lately. It's gone up almost 60% in the past month after reporting solid first-quarter results. Also, billionaire investor Kirk Kerkorian has been accumulating shares and now owns roughly 5% of the company. Management has done a stellar job of cutting costs in a very tough environment, which has hurt all automakers, including Ford's archrival
. That could get worse before it gets better, but much of this seems priced into the stock. We will take a closer look to determine if Ford is worth a long-term investment on a pullback.
Evergreen Solar and Ford are on the Watch List for TheStreet.com Stocks Under $10 service. Frank Curzio writes regularly about stocks priced below $10 a share, such as Advanced Micro Devices (AMD) - Get Report, Arris (ARRS) - Get Report and Tenet Health Care (THC) - Get Report for TheStreet.com
In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research analyst at TheStreet.com, where he works closely with Jim Cramer and writes
newsletter. He also hosts "The Real Story" -- a daily podcast on TheStreet.com on which he reviews the latest headlines and offers stock-picking advice. He is a regular guest on FoxBusiness News and previously was the editor of The FXC Newsletter and portfolio manager for Greentree Financial. He appreciates your feedback;
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