Stocks Under $5 That Have Incredibly Cheap Valuations

by on April 20, 2012

in Screens, Small Cap Value Stocks

While there is nothing magical about a stock price of $5 or below, it is an important psychological threshold. I do want to point out that there is a world of difference between a low stock price and cheap valuations. Low stock price does not mean that the company is undervalued. The reverse is also true. A stock may be priced above $100K per share and a good value investor might deem it as undervalued.

With that being said, the following 4 stocks do have their share prices under $5/share, although in each case the stock price is comfortably above the $1 mark. Additionally, these companies have a lot of cash and little debt and are undervalued in the stock market by a variety of valuation metrics. Many times a stock that appears to be undervalued at a casual glance may turn out to be hiding a “problem”, so it is always a good idea to use this list as a starting point to conduct further due diligence.

1. Westell Technologies (WSTL): We have run into this stock before. The company is valued at $149.6 million in the market which is 77% of its book value. It has no debt, and $149.4 million in cash of different flavors. Hopefully this perked up your ears :-) . Yep, it is a net-net stock.

The deal with stocks like this is to figure out what is wrong with it and then take a position if you believe this issue will be resolved without consuming some of the value in the stock. If you are right, you will make a bundle. Fortunately it is easy to be right on small stocks like this, if you do some research. No body else will, so the investor who does has an advantage.

Forgot to add: the company makes telecommunication equipment.

2. Insignia Systems Inc (ISIG): This company creates in-store advertisements and provides Point of Purchase ad services to retail stores. They also sell software that allows retailers to quickly update prices and create new signage and price tags. The company is pretty small, about $24 million in market value. Fortunately, the entirety of their market valuation is supported by the $23 million in cash that they have. Stock at 85% of book looks mighty attractive. Their PE ratio is claimed to be 0.5 on various internet sites, but I will be wary of this number. They received a $125 m judgement in a lawsuit against News Corp that has helped beef up their balance sheet. The company has seen declining revenues and recently retrenched quite deeply. The question, as always, is whether the stock has already taken the worst of the pounding.

3. Emerson Radio Corp (MSN): This is fondly known as a cigar-butt investment. There may just be one last puff left before the company gives up the ghost. The company sells small consumer electronics (table top refrigerators, wine coolers, etc) in Wal-Mart and other discount stores under the Emerson and other brands and frankly, it is a low margin business. The allure here is the $42 million in cash that the $54 million company has on its books raising the hope that most of this cash will be paid out in dividends before long. This is also a net-net stock.

4. Xenith Bankshares (XBKS): Runs a regional bank (called Xenith Bank) out of Richmond Virginia. Price/Book of 0.6 and a PE ratio around 8 are the main attractions. Market Value is around $44 million and it has $54 million in cash on books nicely balanced against $20 million in debt (it is a bank, banks are in the business of incurring debt).

There you have it. 4 of the most incredibly undervalued stocks under $5, at least in the first level screen. I fully anticipate that one or more of these stocks will end up on the watch list and perhaps even as a recommendation to my premium members.

Do you have any new stocks to add to this list? Have you bought any of these stocks or are considering buying? Or perhaps you have some dirt on one of these companies you want to spill! Let me know in the comments below and let’s get a discussion going

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