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 favorable coverage from analysts, which can direct share-price movements.
The following 10 U.S. stocks trade at less than $5 and have garnered the most "buy" ratings from analysts. (Click to see who gets most Buy ratings.)
10. Sirius XM
Company Profile: Sirius XM broadcasts music, sports, news, talk, entertainment, traffic and weather channels in the U.S. for a subscription fee through its proprietary satellite radio systems. So-called shock jock Howard Stern is a radio personality on Sirius.
Share Price: $1.05 (Sept. 8)
2010 Stock Performance: 75%
Analyst Consensus: Sirius XM ranks in the top 10 with eight analyst "buy" ratings. Another three say investors should hold the stock. No research firm has a "sell" rating on Sirius XM. The average of seven recent stock-price targets is $1.29, which is 23% above where the stock currently trades.
Bullish Case: Miller Tabak analyst David Joyce reiterated his "buy" rating on Sirius XM in a Sept. 3 research note, saying subscriber-acquisitions costs (SAC) per gross addition of $65 "should continue to trend down, due to less expensive consumer-electronics equipment over time." Joyce has a short-term price target of $1.25 and a long-term price target of $1.45.
9. Magnum Hunter Resources
Company Profile: Magnum Hunter is an independent oil and gas company engaged in the acquisition, drilling and production of energy.
Share Price: $3.86 (Sept. 8)
2010 Stock Performance: 149%
Analyst Consensus: Like Sirius XM, Magnum Hunter is rated "buy" by eight research firms and "hold" by three. The average of seven recent stock-price targets is $5.72, which is 48% above where the stock currently trades.
Bullish Case: In an Aug. 26 research note, McNicoll Lewis Vlak analyst Kim Pacanovsky wrote that Magnum Hunters' "oil focus (with the ability to turn on the gas switch if gas prices improve) gives MHR an advantage over gassier peers." Pacanovsky rates Magnum Hunter a "buy" with a price target of $6.
8. Ariad Pharmaceuticals
Company Profile: Ariad is active in the discovery and development of breakthrough medicines to treat cancers by regulating cell signaling with small molecules.
Share Price: $3.52 (Sept. 8)
2010 Stock Performance: 54%
Analyst Consensus: Nine of the 10 analysts covering Ariad recommend that investors buy the stock. The other research firm has a "hold" rating. The average of three recent stock-price targets is $6, which is 70% above where the stock trades now.
Bullish Case: Leerink Swann analyst Howard Liang has an "outperform" rating, an equivalent of a "buy," and a $6 price target on Ariad. In an Aug. 5 research note, Liang said Ariad's stable finances provide a runway for pipeline advances, adding that a partnership with Merck (MRK) may produce significant royalties.
7. General Maritime
Company Profile: General Maritime is a provider of international seaborne crude oil transportation services.
Share Price: $4.34 (Sept. 8)
2010 Stock Performance: -38%
Analyst Consensus: General Maritime is rated a "buy" by nine analysts, while another five recommend investors hold the stock. Two research firms rate the stock a "sell." The average of 10 recent stock-price targets is $8.62, which is nearly double where the stock currently trades.
Bullish Case: Sterne Agee analyst Salvatore Vitale reiterated a "buy" rating on General Maritime on July 30 following weak second-quarter results. Vitale said General Maritime "remains the tanker stock with the greatest upside," and that it "offers the greatest optionality in our tanker universe, as it affords the most growth potential given its smaller size and management's penchant for buying tanker assets at attractive points in the cycle."
6. Art Technology Group
Company Profile: Art Technology develops and markets e-commerce software products and related services, including support and maintenance, professional services and application hosting.
Share Price: $3.74 (Sept. 8)
2010 Stock Performance: -17%
Analyst Consensus: Art Technology is a 10-for-10 — all 10 analysts who cover the company have "buy" ratings, and all say investors should add to their positions. The average of nine recent stock-price targets is $5.14, which is 37% above where the stock currently trades.
Bullish Case: ThinkEquity analyst Aaron Kessler initiated coverage of Art Technology on Aug. 5 with a "buy" rating, arguing that "the company is benefiting from a rising re-platforming cycle and that increasing emphasis on online marketing will drive demand for ARTG's value-added applications."
5. Tenet Healthcare
Company Profile: Tenet is a health-care services company whose subsidiaries and affiliates mainly operate hospitals and health-care facilities.
Share Price: $4.19 (Sept. 8)
2010 Stock Performance: -22%
Analyst Consensus: Tenet garners 10 "buy" ratings from analysts. Another eight suggest that investors hold shares, while one research firm has a "sell" rating on Tenet. The average of 11 recent stock-price targets is $6.73, which is 60% above where the stock currently trades.
Bullish Case: Susquehanna Financial analyst A.J. Rice in an Aug. 13 research report noted several positive factors for Tenet, including "solid" cash-flow trends and several transactions that have pushed back the company's next significant debt maturity until 2015. Rice has a price target of $6.50 on the stock.
4. SandRidge Energy
Company Profile: SandRidge is an independent natural gas and oil company, which concentrates on exploration, development and production.
Share Price: $4.33 (Sept. 8)
2010 Stock Performance: -54%
Analyst Consensus: Of the 20 research firms covering SandRidge, half say investors should buy the shares. Another eight analysts have a "hold" rating on the stock, and two recommend that investors dump the shares. The average of 11 recent stock-price targets is $7.27, which is 68% above where the stock currently trades.
Bullish Case: Wunderlich Securities analyst Neal Dingmann reiterated his "buy" rating and $10 price target on SandRidge on Aug. 6 after the company's stock fell as an "overreaction" to production guidance and hedge settlements.
"SandRidge increased its oil-production guidance this year and stated that next year should be at least 30% higher sequentially," Dingmann wrote. "We believe management estimates could be considered conservative. We are also optimistic that differentials begin to improve."
3. AirTran Holdings
Company Profile: AirTran is a low-cost scheduled airline in the U.S. in terms of departures and seats offered. It operates scheduled airline service throughout the U.S. and to selected international locations.
Share Price: $4.54 (Sept. 8)
2010 Stock Performance: -13%
Analyst Consensus: Ten of the 16 analysts covering AirTran recommend that investors buy shares of the airline company. Another five suggesting holding the stock, while one research firm has a "sell" rating on the stock. The average of nine recent stock-price targets is $7.78, which is 71% above where the stock currently trades.
Bullish Case: Deutsche Bank analyst Michael Linenberg wrote in a July 23 research note that he is anticipating stronger earnings from AirTran for the second half of 2010. "AirTran is continuing to make the right decisions in terms of capacity," Linenberg wrote. "In addition, the company scaled back its 2011-2012 delivery schedule for Boeing 737s by 20%, resulting in planned capacity growth of 3%-4% during those years."
2. Sprint Nextel
Company Profile: Sprint Nextel offers a range of wireless and wireline communications products and services.
Share Price: $4.39 (Sept. 8)
2010 Stock Performance: 20%
Analyst Consensus: Of 31 research firms covering Sprint, 12 say investors should buy the stock. Another 14 recommend investors hold shares, while 5 analysts have a "sell" rating on the telecom company. The average of 17 recent stock-price targets is $4.97, which is 13% above where the stock currently trades.
Bullish Case: In a Sept. 2 research note, Wells Fargo Securities senior analyst Jennifer Fritzsche reiterated an "outperform" rating on Sprint and a valuation range of $5.50 to $5.75. "Based on our findings, we believe there is likely upside to Street expectations for postpay subscribers," Fritzsche wrote. "We believe this is being driven by both stable gross adds as well as possible downside surprise in churn. We continue to believe postpay sub direction and stability around this metric is key to this story."
1. Citigroup
Company Profile: Citigroup is a financial-services holding company, whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit cards.
Share Price: $3.84 (Sept. 8)
2010 Stock Performance: 16%
Analyst Consensus: Citigroup garners the most "buy" ratings, with 13 of the 25 analysts covering the stock recommending that investors increase stakes in the company. Another nine analysts have "hold" ratings on Citigroup, while three researchers suggest that investors dump the shares. The average of 15 recent stock-price targets is $5.37, which is 40% above where the stock currently trades.
Bullish Case: Bank of America/Merrill Lynch analyst Guy Moszkowski wrote in a July 19 research note that Citigroup is continuing to invest for growth.
"With its new capital base, significant reserve levels and improving business and customer discipline, [Citigroup] should be able to survive even a severe loss scenario and still maintain acceptable capital ratios while recovering significant long-term earnings power," Moszkowski wrote.
Second Opinion:
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Disclosures:
Disclosure information was not available for Holmes his company.