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Financially Stable Stocks With Low Prices

by John Bajkowski

Financially Stable Stocks With Low Prices Splash image

Are you better off owning a $4 stock or a $40 stock? Most savvy investors would first want to know a few details such as how the price compares to earnings and the firm’s growth potential and risk. However, a recent study by Soosung Hwang and Chensheng Lu looked at the performance of stocks across different price levels and found that portfolios of low-priced stocks (share price below $5) have outperformed higher-priced stocks even after considering transaction costs. The study focused on one-year holding periods, but the effect held true over longer periods as well. This excess performance was not explained by firm factors such as size or valuation.

This issue’s First Cut starts with exchange-listed stocks with a price below $5 per share that have positive earnings for the most recent 12 months and latest fiscal year. Looking forward, the First Cut stocks have positive consensus earnings for their current fiscal year and have experienced a positive earnings surprise in the latest reported quarter. As a screen for financial strength, the passing stocks have a ratio of total liabilities to assets below the norm for their industry. Twenty eight stocks made the First Cut and are presented in the table below, ranked by their 52-week relative price strength. The percentile rank is computed against all stocks. The 52-week high and low prices provide a feel for the range of price movement over the last year and allow for a quick comparison relative to the current stock price. The market cap (share price times number of shares outstanding) gives a feel for the size of the firms. A general sense of valuation is displayed through the price-earnings ratios.

The study did not focus on the risk of these low-priced portfolios. Stocks with low prices face the possibility of exchange delisting. The low price can also be sign of financial distress. Most of the excess return of these low-priced stocks occurred around January. The lower liquidity of these low-priced stocks may have created a more pronounced January effect.
 

 

Company (Exchange: Ticker) Share
Price
(8/14)
($)
52-Wk 52-Wk
Rel
Strgth
Index
(%)
Market
Cap
($ Mil)
P/E Ratio Total Liab
to Total
Assets
 
Trailing
12 mo.
($)
Forward
Current
Year
($)
 
High
Price
($)
Low
Price
($)
 
Firm
($)
Ind.
($)
 
Description
Tiens Biotech Group (A: TBV) 3.10 5.05 0.75 98 221.1 6.7 9.4 26.4 50.3 supplements
3Com Corporation (M: COMS) 4.15 5.22 1.43 97 1622.9 14.3 19.5 38.7 60.2 network solutions
HealthStream, Inc. (M: HSTM) 3.90 4.20 1.58 95 83.6 17.7 22.9 31.2 62.1 care training
Inventure Group Inc. (M: SNAK) 2.85 3.04 0.90 94 52.0 16.8 12.4 55.0 58.0 specialty food
Intellon Corporation (M: ITLN) 4.86 6.00 1.42 92 152.3 60.8 33.8 12.2 30.4 integrated circuits
Pervasive Software (M: PVSW) 5.00 6.35 3.25 90 90.5 17.2 16.0 12.4 53.1 data mgmt software
Continucare Corp. (A: CNU) 2.66 3.17 1.53 87 158.0 12.7 11.6 10.5 66.3 physician servs
Art Technology Group (M: ARTG) 4.30 4.55 1.02 85 572.0 47.8 22.9 38.4 53.1 e-commerce servs
Summer Infant, Inc. (M: SUMR) 4.17 4.82 1.05 84 64.2 13.5 12.1 49.7 60.0 child safety prods
GSI Technology, Inc. (M: GSIT) 3.76 4.47 2.00 80 101.3 12.5 17.9 9.0 30.4 RAM for telecomm
Advanced Battery Tech (M: ABAT) 4.21 5.04 1.17 76 260.5 12.0 10.4 14.2 60.1 cell phone holding co
Perma-Fix Environmental (M: PESI) 2.42 2.72 0.63 74 131.2 80.7 36.7 49.3 68.7 environ & tech 
Noah Education Holdings (N: NED) 4.76 5.87 1.85 70 191.4 11.3 13.8 11.1 45.6 multimedia learning
BigBand Networks, Inc. (M: BBND) 3.90 7.18 2.36 64 258.7 17.0 102.6 30.0 55.1 network platforms
Sorl Auto Parts, Inc. (M: SORL) 4.94 6.10 1.14 64 90.3 11.2 20.3 22.6 78.4 auto brakes
Wet Seal, Inc., The (M: WTSLA) 3.53 5.20 1.85 57 342.6 13.6 15.0 32.6 42.0 retail apparel chain
Motorcar Parts of America (M: MPAA) 5.00 7.45 2.90 55 59.8 29.4 9.9 40.0 78.4 alternators & starters
Extreme Networks, Inc (M: EXTR) 2.61 3.50 1.06 54 231.8 87.0 17.4 42.6 55.1 network equip
Virco Mfg. Corporation (M: VIRC) 3.14 4.60 1.65 48 44.4 44.9 28.5 52.0 52.3 class & office furniture
China Information Security (M: CPBY) 3.53 5.89 1.82 43 172.3 6.9 6.0 28.2 53.1 public security servs
Hastings Entertainment (M: HAST) 4.65 8.59 1.26 32 45.2 16.0 11.6 58.3 64.3 entertainment stores
TGC Industries, Inc. (M: TGE) 3.46 6.94 1.00 30 63.3 6.2 13.8 34.5 50.4 oil & gas 3-D survey
BioClinica, Inc. (M: BIOC) 3.51 8.00 2.15 24 50.4 11.7 17.6 31.6 66.3 clinical trials mgmt
Ultrapetrol (Bahamas) Ltd. (M: ULTR) 4.99 13.17 1.79 18 147.3 4.8 12.5 55.4 60.2 industrial shipping
TransAct Technologies (M: TACT) 4.80 13.70 1.60 17 44.7 20.0 20.4 25.9 56.7 receipt printers
StealthGas Inc. (M: GASS) 5.00 17.09 2.51 12 111.6 4.9 4.1 49.7 60.2 liquid gas transport
Paragon Shipping Inc. (M: PRGN) 4.29 16.20 2.25 10 185.1 1.9 2.7 49.5 60.2 drybulk shipping
FreeSeas Inc. (M: FREE) 1.80 7.18 0.52 10 38.1 1.6 3.7 57.1 60.2 drybulk shipping

 

John Bajkowski is president of AAII.


Discussion

Samuel from IL posted over 3 years ago:

What is the screening criteria to reproduce these results? Can you provide your screening criteria for all your articles?


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