Once again, we are on the hunt for cheap stocks. This week, we focused on stocks under $5. The reason we like cheap stocks is because these are the ones that have been proven to be most likely to deliver large 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 study defined cheap stocks as those priced below $5. We began with that as our starting point for this week’s search.
We then limited our search to stocks that have been profitable over the past twelve months and are expected to be profitable in the next year. stock market trading at low prices also carry the greatest risk and by limiting our search to stocks with profits, we are attempting to limit risk.
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Of course, there is no guarantee this requirement will reduce the risk of any individual trade. Even the stocks of profitable companies can crash. Therefore, if you decide to buy any of these stocks, we recommend you limit your exposure to these stocks with position sizes that are reasonable.
After finding cheap stocks with profits, we added a requirement that the company must be growing. There are many ways to define growth. We focused on growth in earnings per share (EPS) and sales. Again, we are attempting to add safety to this list by focusing on earnings as well as sales.
We required growth in EPS of at least 25% this year and projected growth of at least that much for next year. We also required that the company has reported growth in sales over the past five years. For this requirement, any amount of growth is sufficient.
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.
This screen used the criteria listed above to identify seven technology stocks under $7.
Five cheap stocks passed this screen and could be a starting point for research. The companies were:
Cemtrex, Inc. (Nasdaq: CETX)
This company provides electronic manufacturing services of electric system assemblies, instruments and emission monitors for industrial processes, and industrial air filtration and environmental control systems worldwide.
The IPS segment provides a range of air filtration and environmental control products to various industrial and manufacturing industries. The EMS segment provides electronic manufacturing services to original equipment manufacturers and technology companies that operate primarily in the medical, industrial, automation, automotive, and renewable markets.
CETX has been forming a base pattern on the chart for about six months.
The company is followed by one analyst. This analyst expects EPS of $0.29 this year, $0.72 next year and $1.19 in fiscal year 2019 which ends in September 2019. The next earnings announcement is expected around December 22 and could provide a catalyst for the stock.
DHI Group, Inc. (NYSE: DHX)
This company provides specialized websites focused on select professional communities in the United States and internationally.
The company operates Dice, a website that provides job postings targeting software engineers, big data professionals, systems administrators, database specialists, project managers, and other technology and engineering professionals.
It also operates ClearanceJobs, an Internet-based career network that matches security-cleared professionals with hiring companies searching for employees; and eFinancialCareers, a financial services career website for financial services industry professionals such as asset management, risk, investment banking, and information technology.
The oil and gas industry is served with Rigzone. Hcareers is a website for hospitality jobs in North America; and BioSpace is a resource for biotechnology careers, news, and resources in the area of life sciences.
In addition, the company offers Health eCareers, a website that provides career services across various disciplines and specialties in the healthcare industry, including physicians, nurses, and a range of allied health professions.
Further, it operates WorkDigital, which focuses on the recruitment industry; and Targeted Job Fairs for technology, energy, and security-cleared professionals, as well as provides getTalent, a software as a service talent sourcing management and engagement tool.
The stock is trading at just ten times next year’s expected earnings of $0.21 per share. This stock chart also shows an extended period of base formation.
LightPath Technologies, Inc. (Nasdaq: LPTH)
This company designs, develops, manufactures, and distributes optical components and assemblies. The company offers precision molded glass aspheric optics, molded and diamond-turned infrared aspheric lenses, GRADIUM glass lenses, and other optical materials used to produce products that manipulate light.
Its products are used in various industries, including defense products, medical devices, laser aided industrial tools, automotive safety applications, barcode scanners, optical data storage, hybrid fiber coax datacom, telecommunications, machine vision and sensors, and other industries.
LPTH is trading at about 15 times next year’s expected EPS of $0.18. This stock has been moving higher and formed a base well above its 52 week lows.
There was no news to explain the stock’s recent volatility. However, the chart shows that buyers have been behind all of the recent surges higher. This could be a sign the stock is under accumulation.
Diversified Restaurant Holdings, Inc. (Nasdaq: SAUC)
This company operates Buffalo Wild Wings Grill & Bar franchised restaurants, which primarily offer fresh bone-in chicken wings. As of June 9, 2017, it operated 64 Buffalo Wild Wings Grill & Bar franchised restaurants in Florida, Illinois, Indiana, Michigan, and Missouri.
This stock has been in a multiyear downtrend since it began trading in 2013.
Over that time, sales have increased but management has taken on an increasing amount of debt for acquisitions. However, the company consistently reports operating costs lower than its competitors and has reported strong growth in free cash flow over the past three years.
SAUC is well positioned to pay down its debt. That would boost operating profits. The stock is now priced below the tangible value of the company’s restaurants and tangible assets which are valued at $1.89 per share.
Taseko Mines Limited (NYSE: TGB)
This is a mining company that acquires, develops, and operates mineral properties in Canada and the United States. The company explores for copper, molybdenum, gold, niobium, and silver deposits. It holds a 75% interest in the Gibraltar copper mine located in central British Columbia.
The company also has interests in the Aley niobium, Harmony gold, and New Prosperity gold-copper projects situated in British Columbia; and the Florence copper project located in central Arizona.
The long term stock chart of TGB is bullish.
The bottoming pattern seen in the chart provides a target price of more than $4 a share. The company is expected to report EPS of $0.22 this year, $0.29 next year and $0.22 the year after that. An industry average price to earnings (P/E) ratio of 20 confirms the target of $4 on a fundamental basis.
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