Low priced stocks can deliver large gains, if the company can be successful. When considering what makes a company successful, many investors turn to earnings. They might believe that increases in earnings per share (EPS) are the key to success.
But, for low prices stocks, that might not be true. EPS would, of course, be nice. But, there are many items that come before earnings on the income statement, a summary of a company’s financial operations.
At the top of the income statement is sales. This could be the most important factor to success for a low priced stock. Sales are necessary to produce earnings. Sales are needed to generate cash flow from operations. In short, sales are a critical component of success for a company.
This week, we focused on sales, requiring companies to have reported sales growth of at least 25% over the past five years.
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Then, we limited our search to low priced stocks.
Individual investors understand that low priced stocks could be appealing for two reasons. One reason is that the low price means they have little down side risk in dollar terms. The second reason is that low priced stocks are generally the ones that deliver the largest short term gains.
One study looked at how low priced, or cheap, stocks performed relative to more expensive stocks. The study found that cheap stocks delivered more than six times the average return of the more expensive stocks in a typical quarter.
That’s why we limited our search for potential bargains by focusing on stocks priced at less than $10 per share.
Finally, we required the stock to offer a dividend that is higher than the risk free rate of return of 3.1% available on Treasury notes maturing in ten years.
One way to find stocks meeting these requirements is with the free stock screening tool available at FinViz.com. At this site, you could screen for a variety of fundamental factors, high levels of institutional ownership and bullish institutional transactions. An example is shown below.
Six Stocks Meet Our Strict Requirements
Remember, there is no guarantee any stock will increase in value. Also, it is important to remember when we search for stocks using quantitative measures, our goal is to identify stocks that meet those criteria. The screens we develop could be used as the cornerstone of long term investment strategies but any individual stock in the list could be a winner or loser.
Harmony Gold Mining Company Limited (NYSE: HMY)
HMY engages in the exploration and mining of gold in South Africa and Papua New Guinea. The company also explores for copper and silver deposits. It has nine underground operations; an open-pit mine; and various other surface operations in South Africa.
The stock recently offered a yield of about 3.4%. The stock price appears to be near support.
The indicator at the bottom of the chart is the stochastic, a popular momentum indicator. Stochastics recently became oversold and completed a bullish crossover, a buy signal to technical analysts. This could indicate a timely entry point at the current price.
Cypress Energy Partners, L.P. (NYSE: CELP)
CELP provides pipeline inspection and integrity, and environmental services in North America. It operates in three segments: Pipeline Inspection Services (PIS), Integrity Services (IS), and Water and Environmental Services (W&ES).
The PIS segment offers independent inspection services for various facilities and equipment, such as transmission pipelines, oil and natural gas gathering systems, pump and compressor stations, storage facilities and terminals, and gas distribution systems.
It offers project coordination, staking, pig tracking, maintenance and construction inspection, ultrasonic nondestructive examination, and related data management services.
The IS segment provides hydrostatic testing and related services, including filling, pressure testing, and dewatering to natural gas, petroleum, and pipeline construction companies. It performs various integrity services on newly constructed and existing oil and natural gas pipelines.
The W&ES segment provides saltwater disposal (SWD) services; and owns and operates eight commercial SWD facilities in the Bakken Shale region of the Williston Basin in North Dakota, as well as one SWD facilities in the Permian Basin in Texas.
These are services largely related to the exploration of oil and development of drilling operations. High oil prices could boost shares of the company. The chart shows that CELP appears to be breaking out of an extended consolidation pattern.
Again the stochastics indicator is bullish and there is significant potential upside in the stock which offers a yield of more than 13%.
Orchid Island Capital, Inc. (NYSE: ORC)
ORC a specialty finance company, invests in residential mortgage-backed securities (RMBS) in the United States. The company’s RMBS are backed primarily by single-family residential mortgage loans, referred as Agency RMBS.
Its portfolio includes traditional pass-through Agency RMBS; and structured Agency RMBS, including collateralized mortgage obligations, interest only securities, inverse interest only securities, and principal only securities.
The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal income taxes if it distributes at least 90% of its taxable income to its stockholders.
The yield of more than 15% could be enticing to income investors. The chart shows a bullish crossover in stochastics which could point to higher prices.
Tarena International, Inc. (Nasdaq: TEDU)
TEDU provides professional education services through part-time and full-time classes in the People’s Republic of China. It offers education courses in 12 information technology (IT) subjects, such as Java, .NET, C++, software testing, PHP and embedded, Android, iOS.
The company delivers professional education lectures through a network of 145 directly managed learning centers in 46 cities.
The chart of TEDU shows that momentum is bearish. Conservative investors might want to wait for an upturn in momentum before this stock as a potential buy.
Any of these stocks could be a potential winner and all worth further research. If you are uncomfortable doing your own research, there is a TradingTips.com trading service, Triple-Digit Returns, which uses a very specific system for choosing the right stocks to trade.
Triple-Digit Returns looks for companies that are misunderstood and potentially undervalued, lost darlings, mergers or spinoffs that could benefit share holders, or companies that show signs of strong interest by insiders who know the company best and see value.
This service provides a recommendation once a week. It could be used for trading or learning how to analyze stocks since each recommendation includes a detailed explanation of the company. To learn more, you can click here.