Most stocks trading under $10 probably traded much higher at one point or another. Trading below that price point is usually not a badge of honor. But, inexpensive stocks often make huge percentage moves, both up and down, on news. Here are $10 stocks which trade an average of 10 million shares a day and a look at where they might be in a year.
Sirius (SIRI) has now been in a range between $4 and $2.50 for over a year. Its merger with XM Satellite (XMSR) has been sitting without any government clearance for over three quarters. Management has made the point that the two companies have 15 million paid subscribers between them and can cut tens of millions of dollars in costs. The market seems skeptical, but a look at the numbers indicates that the combined operation does have a shot at taking out a lot of expense, especially if it can consolidate on one satellite platform. That could take a couple of years, but if the merger goes through and the road map for taking out redundant tech costs looks good, the shares ought to double.
Charter (CHTR) recently traded as low at $.92 and has been around $1 in recent trading. The stock has a 52-week high of almost $5. At a $425 million market cap, the company now trades at .07x revenue. With nearly $20 billion in debt and a possible drop in consumer spending on telecom and cable services as part of a slowing economy, Wall St.is trying to figure out how the company will make its debt service this year. Billionaire Paul Allen, who has de facto control of the company, could put in more debt, but that would squeeze existing common shareholders down to zero.
Every time Wall St. looks at Level 3 (LVLT) it sees promise. The company provides broadband pipes all over the US and some abroad. In a world where high-speed data, video, and voice are powering internet traffic, the shares should be the perfect investment. But, they aren’t. Over the last year, LVLT is off close to 60%. It is hard to find any other widely-traded stock in that neighborhood. Level 3 shares were downgraded recently, by Morgan Stanley, from "equal weight" to "underweight". The Morgan Stanley research note said "Level 3 expects to generate negative free cash flow for the rest of 2008." The operation still has $6.3 billion in long-term debt, and, without any operating profits, it is an unlikely buy-out target. If current management stays in place these shares could go from $2.14 to under $1.50 over the next year.
Ford (F) still looks like it cannot make it as a stand alone company. Its share of the US market are down below 15% and it does not have the earnings power that GM (GM) has overseas. Ford continues employee buy-outs but if sales continue down no reasonable level of cutting will make its North American operations profitable.The Ford family controls the company with its super-majority shares. Over the next few quarters the Ford may well strike a deal with Nissan or a big European car company. The share price is going to have to be closer to $9 than it is at the current $6.10.
E*Trade (ETFC) may have finally turned the corner. Its shares have moved from $2.08 in mid-January to $4.63. The discount broker recently announced that January trading volume was up 22% over the same month last year. The company says it is cutting spending by $275 million. Wall St. is beginning to believe that the company’s retail business can do well while its weak mortgage-related assets should require only modest write-downs this year. To say the shares could move up 50% or more over the next year sounds aggressive, but the stock did trade for $25 a year ago.
Dendreon (DNDN) is the market’s favorite biotech and Wall St.’s favorite whipping boy.The shares have gone from at 52-week high of over $25 to $5.14. The company did come out with some good news recently. DNDN’s prostate cancer vaccine candidate Provenge showed encouraging results in clinical trials. The company also got patent approval for the drug in Europe. In the September quarter, Dendreon lost almost $20 million and had cash and short-term investments of $120 million. The hedge fund Visium recently took a 10% position in the company. A lot of the news has been encouraging for this company recently. The stock has a shot at $8 or $9 a year out.
Sprint (S) is going to get sold, merged, or have its WiMax unit spun out. Activist investor Ralph Whitworth has just joined the board which should put a large fire under company management. There are rumors that Intel (INTC) will put $2 billion into a new firm which would hold the assets of WiMax start-up Clearwire (CLWR) and related assets from Sprint. Whitworth wants that company to stop messing around with a next generation technology and fix its customer retention. He is likely to get his way. A turnaround that looked like it might not start for several quarters is about to get underway. Sprint is under $9 now. Its 52-week high is over $23. A year from now it could certainly be back at $17 or better. Or, Whitworth will have fired everyone by then.
Circuit City (CC) is a retailer that is worse off than Office Depot The stock has gone from over $21 to under $5 in the last year. Bigger rival Best Buy (BBY) recently cut its 2008 outlook. Large general retailers like Wal-Mart (WMT) are likely to cut prices on consumer electronics to keep customers moving through the door. CC has under 700 outlets in the US, which gives it a much smaller geographic footprint than most of its rivals. About the time Circuit City reported poor December sales news hit the market that TCW Group, which had been the company’s largest investor, had liquidated almost all of its shares. Being a modest-sized player in a cut-throat business during a recession has the earmarks of real trouble. Circuit City could see $3 in the next year.
AMD (AMD) got a little interest from Wall St. last week on rumors that another chip-maker, Nvidia (NVDA) might buy it. NVDA is not going to spend $4 billion or more to buy a company which is a break-even business with modest revenue growth and $5 billion in debt. Two years ago, AMD was a $40 stock. It had strong gross margins and was taking market share from Intel (INTC). Intel pushed its smaller rival into a price war. AMD shares now trade at $6.53. Nvidia had bad news of its own. Gross margins at the company dropped and that pushed its shares down 15% in one day. Despite a tremendous balance sheet and its highly profitable chip business, Intel trades near its 52-week low. When the highest quality companies in an industry are being sold off, the weaker ones like AMD are due for real trouble. A year from now AMD could certainly be below $4.
Douglas A McIntyre