3 Interesting Stocks Under $10
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In his widely hailed book, You Can Be a Stock Market Genius, value investor Joel Greenblatt offers retail investors a number of ways to profit in the stock market. One of the strategies Greenblatt suggests is looking at stocks that trade under $10. Greenblatt argues that, for a variety of reasons, these stocks are likely to be ignored by institutional investors, giving retail traders greater room to find bargains.
Logitech is a major maker of PC peripherals
For the bears, Logitech might be an intriguing short play. Although shares are down over 25% in the last six months, the short float on the stock is still relatively low -- less than 15%.
Simply put, Logitech could be facing strong secular headwinds that could threaten the company’s entire business model. Logitech is a maker of PC peripherals like mice, keyboards and speakers. Look around a given office and there’s a good chance someone is typing away on a Logitech keyboard, or clicking away on a Logitech mouse.
But that said, there are real signs that the entire PC market is dying. The rise of smartphones and tablets has destroyed the demand for PCs; and as sales have slumped, PC makers like Dell and Hewlett-Packard have run into financial difficulty. Likewise, if there is less demand for PCs, there should be less demand for Logitech’s PC-related products.
To be fair, the company has expanded into the tablet market: its iPad keyboards are arguably the best in class. But even so, those accessories make up a tiny portion of Logitech’s larger product portfolio.
World Wrestling Entertainment pays a decent dividend
Wrestling seems to have long past its peak popularity. But WWE is an intriguing small cap for a number of reasons.
The company has a fairly high dividend yield of 5.50% -- about double that of Coca-Cola. Wrestling remains popular among a certain segment of the American public and WWE basically operates a monopoly within the space.
The company had partnered with THQ on its wrestling video games, but with THQ going bankrupt, Take-Two (the maker of Grand Theft Auto) will be taking over. On the company’s last earnings call, CEO Vince McMahon seemed pleased with the deal, explaining that Take-Two wants to expand the number of platforms WWE’s wrestling games appear on.
The company has been working on launching its own TV network, but so far has been unable to get it off the ground. In the meantime, it has expanded its airtime on other networks.
On the downside, executive compensation has risen dramatically over the past year -- up 50% -- despite the fact that shares are near flat over that time. What’s more, it’s a bit disturbing that McMahon believes that the number of twitter followers the company has is worthy of bragging about on an earnings call.
Nutrisystem is a turnaround story and a play on the obesity epidemic
Nutrisystem hired a new CEO, Dawn Zier, last November. Shares of the company have performed terribly over the last five years, and Zier acknowledges that she is trying to engineer a turnaround.
Nutrisystem’s dividend yield of about 8% is even more attractive than WWE’s. That said, shareholders have lost over 20% of their capital in just the last year alone.
Obesity, however, remains an epidemic in America, and Nutrisystem is poised to take advantage of the growing demand for weight loss. The company has begun to partner with Walmart to sell packs of its food at Walmart stores.
Of course, Nutrisystem faces significant competition in the space, including the rise of new obesity-fighting drugs and a reinvigorated, online-focused Weight Watchers. Anyone considering investing in Nutrisystem must decide if the company’s model -- selling consumers a subscription to diet food deliveries -- is still relevant.
However, if Zier can orchestrate a successful turnaround, the stock could have potential, and investors could pick up a nice dividend in the meantime.
Looking for investments in unpopular places
Greenblatt believes retail investors should seek out of ideas outside of the mainstream, where they are more likely to stumble upon an investment that’s been unfairly ignored. He doesn’t advocate penny stocks, but rather, companies institutional investors don’t bother to consider.
None of the major banks have analysts covering WWE, and Citigroup is the only major firm to cover Nutrisystem. Logitech is a significant ancillary play on the PC business, but generally gets ignored in favor of the bigger names.
These companies might ultimately perform poorly, but investors should consider taking Greenblatt's advice: look for companies that fit this mold rather than just trying to chase the next Apple.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Logitech International SA (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!