There's a balance between performance and stability when it comes to stock prices. Equities priced under $5 per share can offer huge percentage returns, but are generally volatile. Stocks priced more than $10 are generally more predictable, but offer a muted upside. In between $5 and $10 though, stocks offer the best of both worlds. Here are five sub-$10 stocks to consider today...
1. Boise Inc. (NYSE: BZ): Paper and forestry stocks have been one of the market’s recent-but-quiet big winners, and Boise Inc. has been blazing the trail every step of the way. Shares are up about +46% in the past 12 months, while the forestry indices are up about +28% in the same period. The overall market, by comparison, has only gained about +14% in the same timeframe.
While such outperformance has often been followed by matching underperformance in the past year and a half, for paper stocks -- and Boise in particular -- a continued uptrend may be more than merited.
Skyrocketing materials costs through 2007 nearly brought the paper and corrugated box industry to its knees. For better or worse, the recession that began at the end of that year solved the problem. Though materials costs were up on a year-over-year basis for Boise last quarter, they’re still well under 2007’s stunning levels, despite the mild economic rebound since then. The result? Boise just posted record-breaking third-quarter operating income of $0.44 per share, and the sustainable balance between materials costs and paper demand remains intact.
2. Aircastle LTD (NYSE: AYR): While it may feel too late to tap into the revival of the airline industry, it’s not. The back door is still open, via Aircastle.
Besides, with a trailing as well as a projected price-to-earnings ratio (P/E) just above 8.0, it’s not like value is a question mark with Aircastle.
3. American Axle & Manufacturing (NYSE: AXL): The initial reaction to last quarter's earnings for American Axle & Manufacturing wasn’t a kind one. Despite topping analyst estimates of $0.39 by actually bringing home $0.52 per share, the company dropped from a high of $10.15 to an ultimate low of $8.84 thanks to a “disappointing” full-year revenue forecast in the $2.2 billion to $2.3 billion range.
While the actual numbers may have been shy of estimates, valuations here are also teetering on being ridiculous. American Axle shares are priced at a mere 8 times earnings on a trailing basis in the last four quarters, and even if earnings shrink per current EPS estimates of $1.35 for 2011 (which isn’t likely), the stock’s still priced at about seven times forward-looking forecasts. The market seems to have caught its mistake though; the stock has bounced back to $9.96.
: this stock has far more upside potential packed into its future.
4. Celestica (NYSE: CLS): A stock that rallies on good news makes sense. A stock that rebounds despite bad news may not make much sense, but in many regards it speaks volumes more about how investors view the company.
After the electronics manufacturer announced last week it would likely be posting income under analysts’ estimates of $0.25 per share for the current quarter, shares fell from $8.84 to a low of $7.96 -- for half of a day. Now it’s even higher than where it started that journey.
So the company countered the bad news with a rebound catalyst? No. It’s just that Celestica is (1) still consistently growing earnings on a year-over-year basis, and (2) is still bargain-priced at less than 10 times 2011’s anticipated earnings.
5. Excel Maritime Carriers (EXM): Finally, there’s a difference between "based in Greece" and "dependent on the Greek." Excel Maritime Carriers is only guilty of the former, but the stock has taken several lumps in the past few months, suggesting investors are assuming the latter.
That’s not to say the company escaped the global recession unscathed -- Excel Maritime did indeed dip into the red throughout most of 2009. In the last three quarters though, operating profits have not only improved, they’ve been positive, and the company appears to be coming out of the storm. In fact, the company topped last quarter’s EPS estimate of $0.10 with a per-share profit of $0.11.
While one -- or even three -- solid quarters don’t mean everything, the plausibly forecasted (2011) P/E of 8.8 goes a long way toward that end.
Action to Take --> Investors don't have to choose strictly between stability and performance. The narrow band of stocks priced between $5 and $10 offer a very rewarding balance of both. These five names are among the picks of that particular litter, and could serve as a well-balanced addition to almost any portfolio.