John Dorfman: Stocks under $10 bound to rebound

John Dorfman: Stocks under $10 bound
to rebound
About John Dorfman
John Dorfman 617-542-8888
Freelance Columnist
Pittsburgh Tribune-Review
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated
columnist. His firm or clients may own or trade securities discussed in this
column.
By John Dorfman
Published: Tuesday, June 24, 2014 12:01 a.m.
When it comes to recommending stocks under $10 a share, my record is not so hot. In eight
previous columns devoted to low-priced stocks (June of 2001-06, 2011 and 2013), my picks
have been profitable five times and beaten the Standard & Poor's 500 Index only three times.
The average 12-month total return (including dividends) on my picks has been 4.5 percent,
compared with 8.6 percent for the S&P 500.
As for my picks a year ago, they gained 11.8 percent, which wouldn't be bad in a normal year. But
the period from June 25, 2013, through June 20, 2014, was a very strong year, with the S&P 500 up
26.2 percent.
A nice gain of 55 percent in Smith & Wesson Holding Corp. was spoiled by losses of 24 percent in
LeapFrog Enterprises Inc. and 4 percent in McDermott International Inc.
My other two picks from last year, Regions Financial Corp. and Iridium Communications Inc., rose
moderately.
Bear in mind that the performance of column recommendations is hypothetical and doesn't reflect
trading costs or taxes. Past performance doesn't predict results.
And the results of my column selections shouldn't be confused with the performance I achieve in
portfolios managed for clients.
LIKE LESTER?
I'd like to think that my bad result for this series of columns is a bit like Jon Lester's record pitching
against the Minnesota Twins.
Lester ranks as the ace of the Boston Red Sox staff, with a lifetime record of 108 wins and 63
losses. Yet he has won only two against the Twins, while losing four.
I figure that Lester will eventually solve the Twins, and I hope to do the same in picking stocks under
$10.
That's not simply because I'm stubborn (which I am), but because I know some investors actively
prefer stocks selling in the under-$10 price range.
Fans believe that low-priced stocks potentially have farther to rise than higher-priced ones, are more
speculative and more volatile — all of which appeal to risk takers.
Here are five recommendations.
HUNTINGTON BANCSHARES
Huntington Bancshares Inc. (HBAN, $9.62 as of June 20) of Columbus, Ohio, is a conservatively run
Midwestern regional bank with few frills. At 13 times earnings and 1.4 times book value (corporate
net worth per share) it is modestly valued compared to most stocks in today's market. It pays a
decent dividend, with about a 2 percent yield.
Most analysts yawn at Huntington, with fewer than one third of them recommending it. “Hold” is the
most common rating. But in an improving economy with gently rising interest rates — a probable
scenario in my book — I think Huntington will do well.
BELLATRIX EXPLORATION
The United States is not the only country experiencing a boom in oil-and-gas drilling in shale
formations. Canada also is, and one of its richest formations is the Cardium, which is mostly in
Alberta but extends into British Columbia and down into Montana.
Bellatrix Exploration Ltd. (BXE, $8.45), based in Calgary, Alberta, has a lot of acreage in the
Cardium. That's one reason its revenue has grown to $231 million from $165 million in the past two
years. The stock sells for 13 times earnings.
JOURNAL COMMUNICATIONS
On the small side, I like Journal Communications Inc. (JMRN, $8.06) of Milwaukee, Wis. It owns 13
television stations and 35 radio stations, the Milwaukee Journal-Sentinel, and some other media
properties.
The past few years have been unkind to media companies, but if the economy accelerates, the
advertising environment — and Journal's business prospects — will improve. The stock goes for 12
times earnings.
HALLADOR ENERGY
Few industries have fared worse in the past three years than coal, pounded by cheap natural gas
and by increasing environmental regulations. Hallador Energy Co. (HNRG, $9.83), the parent to
Sunrise Coal, has held up a little better than most.
Coal for steam generation is making a minor comeback relative to natural gas, as the price of the
latter creeps up. The latest proposed environmental regulations from the Obama administration
weren't as harsh as feared. Hallador is a candidate for at least a one-year bounce. But consider it
speculative.
John Dorfman is chairman of Thunderstorm Capital in Boston and a syndicated columnist. He can
be reached at [email protected].

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