• The First Cut
  • 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 5 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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