This is a sample Stocks Under $10 alert. This was sent to subscribers June 1, 2004.

El Paso

(EP)

has become a stock that no one wants to own, and there are a host of reasons why. The company hasn't yet filed its 10-K for 2003, has cut reserves, remains in a race to shed assets and pay down debt, and was forced to raise cash through a series of three secondary stock sales to fund the California Energy settlement. But we think there is more to the story than meets the eye and will initiate a position at today's open, before too many investors buy into the turnaround story.

El Paso came to be held in such disdain because of its failed efforts to be the next energy trading giant. The company went heavily into debt in 2000 to finance this expansion, which ultimately failed and left the company buried under a heavy interest burden and declining earnings and cash-flow forecasts. The changes management has implemented to address this situation helped the company score well on our proprietary rating system.

The company seems to be righting its ship, and it held an upbeat conference call Friday morning in which CEO Doug Foshee, who gained a great deal of respect in his short stay at

Halliburton

(HAL) - Get Report

, laid out the framework for further cost savings and production growth. Under Foshee, El Paso has been aggressively selling assets to reduce its onerous debt. Thus far, the company has paid down $3.5 billion, leaving it with $19.5 billion in debt. This has the company ahead of its targeted debt reduction of $3.3 billion to $3.9 billion by the end of 2005.

Foshee has pulled in the reins on excessive spending also. El Paso is reducing its headcount by 40% at the office level, is cutting its travel budget, and has even sold off $60 million worth of corporate jets as part of its plan to achieve $150 million of annual cost savings by 2006.

Investors have been waiting on the sidelines for a clear plan to ramp production, and we think the hiring of Lisa Stewart as president of Production and Non-regulated Operations will help that process along. Stewart gained a reputation as a good deal maker during her time at

Apache

(APA) - Get Report

, and is a great addition for a company looking to expand production. There are credible rumors circulating that

Nabors

(NBR) - Get Report

(NBR:Amex), a drilling company, will be putting three to four rigs to work for El Paso in south Texas this summer, and although nothing is guaranteed, that would be a step in the right direction.

But questions still loom. El Paso needs to file its annual report or face possible default on its debt, and any shortfalls in production will put earnings estimates at risk. And there is little doubt that some analysts will take advantage of Friday's call to remind investors how much trouble the company is in.

Image placeholder title

Given that, the company has a 2.2% yield, and the risk to the downside looks limited to the $6 level. We are going to take advantage of the question marks surrounding the company and initiate a 300-share position at today's open because we believe the stock will trade back to the double digits by year-end.

P.S. Remember, stocks priced under $10 have the potential to move quickly. So, you might want to get our current recommendations now with a

free trial

to TheStreet.com Stocks Under $10.

William Gabrielski is a research associate at TheStreet.com and is accredited with a Series 7 license. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabrielski welcomes your feedback and invites you to send your comments to

william.gabrielski@thestreet.com.

Interested in more writings from William Gabrielski? Check out Stocks Under $10. For more information,

click here.

David Peltier is a research associate at TheStreet.com In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier welcomes your feedback and invites you to send your comments to

david.peltier@thestreet.com.