PhotoObjects.net
After a rollercoaster ride in equity markets this year, investors are more than willing to put 2010 in the rearview mirror and look ahead to opportunities in 2011. The case has already been made for investors to pile into quality, large-cap stocks, as money managers expect them to thrive after a decade of sluggishness.
Others may find more value in stocks trading under $5 (U.S.), which typically don't receive attention from mutual funds due to their miniscule share prices. Many of these low-priced stocks have proven to be winners, including SMTC Corp. , Wabash National and Callon Petroleum , all of which more than tripled this year.
In January, Jamie Dlugosch of InvestorPlace offered five penny stocks that offered potential rewards in 2010. Some fared incredibly well, while others languished.
■Sirius XM SIRI-Q is up 130% this year
■Denny's DENN-Q has rallied 67%
■MoneyGram International MGI-N has fallen about 10%
■Majesco Entertainment COOL-Q is down 35%
■Oilsands Quest BQI-A is down 64%
For potential winners of the coming year, analyst recommendations are a good opinion source. Stocks trading under $5 typically have no analysts' coverage -- never mind a "buy" rating -- leaving investors to do the homework for themselves. However, a select few boast of favourable coverage from analysts, which can have a strong effect on share-price movements.
The following 10 U.S. stocks trade at less than $5 and have garnered the most "buy" ratings from analysts, which could lead to high returns over the next 12 months.
10. Achillion Pharmaceuticals
Company Profile: Achillion Pharmaceuticals is a biopharmaceutical company that focuses on the discovery, development and commercialization of innovative treatments for infectious diseases.
Share Price: $3.03 (Dec. 17)
2010 Stock Performance: -2.6%
Analyst Consensus: Seven research analysts have a "buy" rating on Achillion shares. Another two analysts suggesting holding onto shares, while no firm has a "sell" rating on the stock.
Bullish Case: Wedbush analyst Katherine Xu in an Oct. 28 research note reiterated an outperform rating on Achilion with a $5 price target. Xu notes Achillion's drug pipeline, which could "position the company well for further advancement or acquisition, if all goes well."
"We believe Achillion's pipeline, while early, is well-differentiated and broad," Xu wrote. "The dataset on the portfolio the company plans to deliver will build towards a significant value inflection in the next two years, in our opinion."
9. General Maritime
Company Profile: General Maritime is a provider of international seaborne crude-oil transportation services.
Share Price: $3.18 (Dec. 17)
2010 Stock Performance: -54%
Analyst Consensus: General Maritime garners seven "buy" ratings from analysts. Another six have a "hold" rating and five more have a "sell" on General Maritime.
Bullish Case: In a Nov. 2 research note, Credit Suisse analyst Gregory Lewis -- who has a buy rating and an $8 price target on General Maritime -- wrote that market expectations of a common equity increase are premature.
"We believe GMR offers a compelling entry point at the current stock price," Lewis wrote. "We expect eventual vessel sales to pave the way for a turnaround in the stock. Should tanker rates surprise significantly to the downside, we could see a scenario where the company could issue a preferred security. We view this as a potential scenario only in a prolonged distressed freight rate environment."
8. Allos Therapeutics
Company Profile: Allos Therapeutics is a biopharmaceutical company focused on developing and commercializing innovative small-molecule drugs for the treatment of cancer. The company's Folotyn (pralatrexate) is designed to treat T-cell lymphoma.
Share Price: $4.35 (Dec. 17)
2010 Stock Performance: -34%
Analyst Consensus: Seven analysts say investors should buy shares of Allos Therapeutics. Three other analysts recommend that investors hold shares. No researcher has a "sell" rating on Allos.
Bullish Case: In a Dec. 13 research note, ThinkEquity analyst Brian Skorney said the firm has a "buy" rating and a $10 price target on Allos, noting several new clinical analyses of Folotyn.
"New data in T-cell malignancies show compelling efficacy compared to potential competitors and provides additional rationale for oncologists to adopt Folotyn as an important therapy for patients," Skorney wrote.
7. Vantage Drilling
Company Profile: Vantage Drilling contracts drilling units, related equipment and work crews to drill oil and natural gas wells.
Share Price: $2.20 (Dec. 17)
2010 Stock Performance: 37%
Analyst Consensus: Vantage has seven "buy" ratings from research firms. Of the other three firms covering the stock, two say investors should sell shares.
Bullish Case: In a Nov. 12 research report, Deutsche Bank analyst Kathryn O'Connor maintained her "buy" rating on Vantage Drilling, noting the company's new flagship asset, the Platinum Explorer drillship, has completed construction on schedule and management reported successful sea trials. O'Connor says that, with delivery of the Platinum Explorer beginning, leverage may decline in 2011.
"Despite high leverage until then, we believe VTG has desirable geographic diversification, a premium fleet and, most importantly, a solid contract backlog," O'Connor wrote. "We continue to favor the name versus other service/driller credits."
6. Quantum Corp.
Company Profile: Quantum is a global storage company specializing in backup, recovery and archive services. It provides a range of disk, tape and software services.
Share Price: $3.72 (Dec. 17)
2010 Stock Performance: 27%
Analyst Consensus: Seven analysts have a "buy" rating on Quantum shares. The only other analyst covering the stock has a "hold" rating on shares.
Bullish Case: Capstone Investments analyst Shebly Seyrafi initiated coverage of Quantum with a "buy" rating and $4.50 price target, noting that the company could be an attractive acquisition target for potential acquirers such as Dell, Oracle or NetApp.
"[Quantum]could be an attractive target as it offers attractive data deduplication technology and the company's price (less than $1 billion) is small enough to attract other companies for a 'tuck-in'-type acquisition," Seyrafi wrote. "QTM has a formidable data deduplication offering that is expected to roughly double in revenue this fiscal year."
5. Synovus Financial
Company Profile: Synovus is a financial-services company that provides commercial and retail banking services, financial management, insurance, mortgage and leasing services.
Share Price: $2.54 (Dec. 17)
2010 Stock Performance: 24%
Analyst Consensus: Eight research firms rate Synovus a "buy." Another 16 firms say investors should hold on to shares, while three have a "sell" rating on Synovus.
Bullish Case: Following a meeting with Synovus management, Collins Stewart analyst Todd Hagerman wrote in a Nov. 15 research report that he was upgrading the stock to "buy," even though the credit outlook remains cautious.
"While we have questioned management's fortitude in carrying out decisions, such as staff reductions, we now believe management is preparing to announce a combination of cost-savings programs to help restore the company's profitability sooner than expected," Hagerman wrote. "While the stock has come under increasing pressure in recent weeks with fear of a 'take-under,' management appears to have no illusions that unless it accelerates its return to profitability, its future independence is in doubt."
4. SatCon Technology
Company Profile: SatCon delivers power-conditioning services for large renewable-energy installations.
Share Price: $4.27 (Dec. 17)
2010 Stock Performance: 51%
Analyst Consensus: SatCon earns a "buy" rating from nine research analysts. The other two analysts covering the stock rate it a "hold."
Bullish Case: SatCon was the subject of a glowing Nov. 4 research report authored by MDB Capital Group's Jon Hickman, who maintained a "buy" rating on the stock after the company posted better-than-expected third-quarter results.
"As a world leader in the market for large, utility-scale inverters, we believe SatCon is extremely well-positioned to benefit from the rapidly expanding demand for and production of alternative renewable power," Hickman wrote. "The company is generating impressive revenue growth, and we estimate that this growth, along with improving gross margins, will begin to produce positive bottom-line results."
3. Ariad Pharmaceuticals
Company Profile: Ariad Pharmaceuticals develops cancer treatments by regulating cell signaling with small molecules.
Share Price: $4.57 (Dec. 17)
2010 Stock Performance: 100%
Analyst Consensus: Nine researchers say investors should buy shares of Ariad Pharmaceuticals. There is one analyst with a "hold" rating on Ariad. No firm has a "sell" rating on the stock.
Bullish Case: Brean Murray Carret analyst Ling Wing reiterated a "buy" rating on Ariad in a Dec. 6 research report, based on expectations of Phase III trial data for ridaforolimus, which is Ariad's drug candidate to treat patients with advanced sarcomas.
"Near term, we expect partner Merck to report the final analysis from the Phase III trial of ridaforolimus in advanced sarcoma patients in early [first quarter of 2011]" Wang wrote. "Although we have reservations in the outcome of this trial, we view the risk/reward at current levels to be favorable, especially with Merck taking full financial responsibility of the program."
2. Sprint Nextel
Company Profile: Sprint Nextel offers a range of wireless and wireline products and services.
Share Price: $4.16 (Dec. 17)
2010 Stock Performance: 14%
Analyst Consensus: Sprint Nextel is favored by Wall Street analysts, with 11 researchers recommending the stock as a "buy." Another 16 analysts say investors should hold shares, while four others recommend dumping the stock.
Bullish Case: In a Dec. 12 research note, Credit Suisse analyst Jonathan Chaplin said Sprint remains his highest-conviction "outperform" after the telecom shop announced Network Vision, a plan to spend $5 billion to upgrade Sprint's network over the next five years. The plan will merge Sprint's 3G and 4G towers but spells the end of the push-to-talk iDEN network, which the company has had difficulty integrating since the 2005 merger with Nextel.
"The project will be transformative, if executed successfully," Chaplin wrote. "We believe there is $4/share in upside from Vision. However, we believe the company will only get credit for half of this value in 2011."
Credit Suisse raised its price target to $8.
1. Citigroup
Company Profile: Citigroup provides a range of financial products and services, including consumer banking and credit cards.
Share Price: $4.70 (Dec. 17)
2010 Stock Performance: 42%
Analyst Consensus: Citigroup tops our list with 15 "buy" ratings from research analysts. Nine other analysts have a "hold" rating, and three others say investors should sell shares.
Bullish Case: In a Dec. 1 research note, Deutsche Bank analyst Matt O'Connor reiterated his "buy" rating on Citigroup and said the bank remains his top large-cap bank stock with upside room to run. O'Connor's research note was released a few days before the Treasury Department sold its remaining 2.4 billion shares in Citigroup, netting the Treasury a profit of $12 billion on its $45 billion investment in the bank.
"In the near term, we still see upside to the stock given an attractive valuation -- at a 5% discount to current tangible book of $4.44 and a 15%-20% discount on our year-end 2011 tangible book estimate of about $5 -- and the likely successful exit of the remaining government stake," O'Conner wrote. "Looking out medium/long term, the focus will likely shift toward the underlying performance of Citi's businesses -- some of which have delivered mixed results, but seem to be moving in the right direction."