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Sometimes the stock market will punish a great company for no good reason, and send a stock below its fair value. Wouldn’t it be great if you could identify which stocks under $10 sold off without a good reason, so you could jump in and profit? Here are three stocks I think have done just that, and why you might see a 100% return from each.
Three Best Stocks Under $10
Rite-Aid (NYSE:RAD)
The legendary RAD stock has faced some difficult times. It took on a lot of debt years ago, as it swallowed up other smaller chains. Competition in the space has always been brutal, thanks to other companies like Walgreens (WAG). Competition sprang up in other unexpected places, as department stores like Target (TGT) moved into pharmacy products.
The internet has made it easy to purchase both pharmacy goods online, but also all the other things Rite-Aid sells.
All that competition can only result in bad news for RAD stock: the necessity to lower prices and survive on thinning margins.
The truth is there is nothing special about drugstores. They no longer offer anything that consumers can’t get elsewhere. They have been relegated to quasi-convenience stores.
As more and more people move to mail-order pharmacies, the walk-in business is being siphoned away.
Nevertheless, RAD stock has figured out how to turn its business around. It has shut down underperforming stores, remodeled other ones, and relocated still more. The company introduced a loyalty program called “Wellness” and it seems to be working.
Rite-Aid has also been aggressively moving into the generic drug distribution business. Its other initiatives have been paying off, as EBITDA has turned the corner. After falling several years in a row, it has been climbing steadily since 2011, growing from $859 million up to $1.32 billion.
EPS is set to double from FY13 to FY15, so it seems likely this stock under $10 may double also.
Fortress Investment Group (NYSE:FIG)
FIG stock is another stock under $10 that could double. This is a diversified investment management operation. It helps manage investments for pension plans, corporations, banks, charities, and municipalities.
It also manages hedge fund and private equity funds. Its expertise is broad, investing in all manner of distressed and undervalued assets from real estate to natural resources and even intellectual property.
FIG stock got badly hurt in the financial crisis and it has taken considerable time to recover. However, the company has turned around significantly as the capital markets improved. Cash flow from operations was a mere $168 million in FY11, but hit $433 million in FY13.
Despite all that happened in the financial crisis, insiders still own almost 37% of the stock, indicating their own faith in the company for the long term.
At $7 a share, and long-term analyst EPS projections of 52% growth, this stock under $10 could double.
Wendy’s (NYSE:WEN)
The final stock under $10 that could double is from the burger world. The fast food burger chains have been undergoing significant changes. McDonald’s (MCD) has been struggling with inconsistent sales growth.
Burger King Worldwide (BKW) has executed a successful turnaround. Now, I believe Wendy’s will be the next successful turnaround story.
WEN stock launched a new concept, a remodeling initiative called Image Activation, giving the stores a more modern, minimalist feel. It is innovating its menu choices by offering premium items with higher quality ingredients, and launched a new advertising campaign. That helped quarterly earnings improve, with comps increasing 1.3% YOY. Adjusted EBITDA increased 13%.
The good news is WEN stock has $750 million in cash and $1.5 billion in inexpensive debt. It is free cash flow positive. Slow and steady will win this race, and the $8 stock should double.
Lawrence Meyers does not own shares in any security mentioned.
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