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5 Stocks Under $10 With Big Upside Potential - 34483 views
WINDERMERE, Fla. (Stockpickr) -- There isn’t a day that goes by on Wall Street when we don't see examples of stocks trading near or under $10 a share don’t experience massive spikes higher. Traders savvy enough to follow the low-priced names and trade them with discipline and sound risk management are banking ridiculous coin on a regular basis.
Just take a look at some of the hot movers today in the under-$10 complex, including DynaVox (DVOX), ripping over 30%; SMTC (SMTX), jumping over 20%; CryptoLogic (CRYP), soaring close to 15%; and Flotek Industries (FTK) adding over 15%. (I predicted Flotek's move recently in "5 Earnings Stocks Poised to Pop.") You don’t even have to catch the entire move in lower-priced stocks such as these to make outsized returns when trading.
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I’m not as eager to recommend investing long-term in stocks that trade less than $10 a share because these names can be very speculative, and the odds for picking the long-term winners aren’t great. But I definitely love to trade stocks that are priced below $10. I like to view them as a trading vehicle with lots of volatility and lots of upside when the trade is timed right.
When I trade under-$10 names, I do it almost entirely based off of the charts and technical analysis. I also like to find under-$10 names with a catalyst, but that’s secondary to the chart and volume patterns.
Here's a look at a number of under-$10 stocks that look poised to potentially trade higher from current levels.
One under-$10 stock that’s worth watching here is power technology player American Superconductor (AMSC). The bears have done a number on this equity in 2011, and shares are off by over 84%.
If you take a look at the chart for American Superconductor, you’ll see that this stock has been doing nothing but trending lower since its July high of $9.15. The stock recently hit a low of $3.21 and has started to rebound to its current price of near $4.30 a share. Market players should now monitor AMSC for a breakout trade if a couple of key technical levels can be taken out to the upside in the coming days or weeks.
Those breakout levels worth watching are the 50-day moving average at $4.66 and some past overhead resistance at $4.79. Traders should watch for a high-volume move above those levels to trigger a potentially big move higher. Look for volume on the breakout that’s tracking in close to or above its three-month average action of 1.3 million shares.
This stock has failed to make a sustained move above the 50-day in months, so if that does occur soon on high volume, I would consider it a bullish development. One could be a buyer of this stock once it takes out the 50-day and $4.79 on high-volume. Simply use a stop that’s a few percentage points below the 50-day in case the breakout fails.
Keep in mind that this is a heavily shorted name since the current short interest as a percentage of the float for AMSC is 30.3%. Any near-term breakout could trigger a monster short squeeze, so make sure to watch for any high volume spikes above that 50-day in the coming days or weeks.
Another under-$10 name that should be on your radar right now is fuel cell systems maker Plug Power (PLUG). This stock has struggled so far in 2011, with shares off by around 38%.
If you take a look at the chart for Plug Power, you’ll see that this stock plunged from its May high of $6.20 to a recent low of $1.35 a share. After hitting that low, the stock has started to rebound and print higher highs and higher lows, which is bullish price action. The stock now sets up for a big breakout if it can manage to clear some past overhead resistance levels.
Market players should watch for a breakout trade to trigger if PLUG can manage to move above $2.36 to $2.63 on high-volume. A sustained move and close above those levels should set this stock up to re-test its 200-day moving average of $3.82, or possibly even higher. Traders should watch for volume to register close to or above its three-month average action of 200,411 shares on any breakout.
One could be a buyer of this stock off any significant weakness and simply anticipate the breakout. I would use a mental stop just below some near-term support at $2.12 if you buy off weakness. If you prefer to buy strength, than buy the breakout once it takes out $2.36 with strong volume. Use a tight mental stop a few percentage points below $2.36 if you get long off strength.
The current short interest as a percentage of the float for PLUG is 7.3%. If we do see that breakout in the coming days or weeks, then look for a solid short-covering rally to materialize since the short interest is decent here.
A stock under-$10 name in the chemical manufacturing complex that’s worth eyeing here is Pacific Ethanol (PEIX), a marketer and producer of low-carbon renewable fuels in the Western U.S. This stock has traded virtually flat in 2011, with shares up by just 1.15%.
If you take a look at the chart for Pacific Ethanol, you’ll notice that this stock plunged from its June high of close to $2.50 a share to a recent low of 25 cents a share. After hitting that low, the stock started to trade sideways and broke out over 36 cents and then run up to its current price of 73 cents. Now the stock is setting up for a major breakout if it can manage to clear some past overhead resistance with high volume.
Market players should now watch for PEIX to clear 77 cents on volume that’s close to or well above its three-month average action of 4.35 million shares. The stock has already hit 75 cents today intraday trading and volume is tracking in very strong at over 4.68 million shares at last check. If this stock does trigger a breakout in the coming days or weeks over 77 cents, then look for a monster move back towards $1.12 or possibly much higher.
Once could simply be a buyer of this stock off any near-term weakness and simply use a stop at around 70 cents a share. You could also just buy into strength and get long once 77 cents is taken out to the upside with heavy volume. Use a tight mental stop just below 77 cents if you buy off of strength.
Alliance HealthCare Services
If you’re looking for an under-$10 name in the health care facilities complex, then take a look at Alliance HelathCare Services (AIQ), a national provider of outpatient diagnostic imaging services and a provider of radiation oncology services. This stock has been crushed in 2011, with shares off by around 69%. That huge drop could be about to change rapidly though if the bulls are ready to take back control if this stock.
If you take a look at the chart for Alliance HealthCare Services, you’ll notice that this stock gapped down big in August from over $2.75 to a low of $1 a share. After that massive gap down in price, the stock has been trading in a sideways trading pattern between around $1.60 and $1.02 a share. The stock just started to move back above its 50-day moving average of $1.22 and it’s now setting up for a big breakout if it can manage to clear some past overhead resistance at $1.36 a share. A move over that level should set this stock up to re-test its next significant resistance level at $1.64 a share at the minimum.
One could be a buyer of this stock off any weakness and anticipate the breakout. I would simply use a mental stop that’s just a few percentage points below the 50-day moving average of $1.22 if you get long of weakness. You could also buy off strength and get long once it takes out $1.36 with high-volume.
Look for volume on any breakout that’s tracking in close to or above its three-month average action of 275,205 shares. I would then add to any long position once the stock then takes out $1.64 with high-volume. Target a run back towards $2.25 or possibly even higher if the breakout sustains a move and close over $1.64.
One more under-$10 stock that’s setting up for a big breakout and potential monster move higher clinical documentation solutions provider to the health care sector MedQuist Holdings (MEDH). This stock has traded virtually flat in 2011, with shares off by just 0.33%. That said, if a near-term technical breakout triggers, then we could see a big pop that will put flat performance in the rearview mirror.
If you take a look at the chart for MedQuist, you’ll notice that this stock was hammered from its August high of $13.77 to a recent low of $6.21 a share. After printing that low, the stock has rebounded sharply to its current price of around $9 a share. During that rebound, the stock has started to make higher lows and higher highs, which is bullish price action for any stock. The stock now sets up for a big breakout if some past overhead resistance can be taken out to the upside.
Traders should monitor MEDH for a breakout if it can clear $9.08 to $9.65 a share on high volume. Look for volume that’s tracking in close to or above its three-month average action of 255,530 shares. Volume today has already surpassed 320,000 shares, and the stock is moving up over 4% to $9 a share at last check. If we do see a sustained move and close above those resistance levels soon, then this stock could easily run make a 20% to 30% pop from current levels.
One could buy this stock once it breaks out over $9.08 with strong volume. I would simply use a mental stop that’s a few percentage points below your breakout entry price. You could also anticipate the breakout and buy off any weakness back towards $8.50, with a mental stop just below that level.
The current short interest as a percentage of the float for MEDH is notable at 5.9%. That’s not a huge short interest, but it’s more than enough to spark a big short-squeeze if we do get that breakout in the coming days or weeks.
To see more hot under-$10 stocks, inclusing Power-One (PWER), Office Depot (ODP) and Aegean Marine Petroleum Network (ANW), check out the Stocks Under-$10 Setting Up To Trade Higher portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.