$10 Stocks Breaking Out


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There are many reasons for traders to look for stocks priced below $10 but one of the most common is that traders with small accounts have a difficult time using proper position sizing and diversification with stocks priced in the hundreds of dollars per share. There just isn't enough cash in the account to keep commissions low and to spread their risk around.

It is not traditionally desirable to have a stock price in the sub-$10 range so stocks won't split to get there and usually don't go there willingly. In other words there is usually a reason that a stock has a low share price. This makes the searching and evaluation process more difficult but not impossible. In fact, low priced stocks with strong fundamentals may have a lot of growth potential and could be well worth the effort.

Sometimes a company's stock gets beat up because of recent strategic issues that have forced the firm to innovate and reinvent itself. This could be just the time to be evaluating firms in this situation. However, just because a stock is priced low does not automatically mean it is at the 'bottom'. A stock can always go lower so there are a few key metrics we would recommend in any search for good, low-priced candidates.

Low prices stocks can often be easier to buy than to sell. This is a common problem with so called penny stocks. The spread between the bid and ask price or the extra expense of trading a stock that is not officially listed on a major exchange (pink sheets) can put the odds against you. Usually we suggest that a stock should be listed on a regular exchange and be trading at least 100K shares per day to be a possible buy candidate

Return on Equity:
Buying a firm that has no track record for making money but a compelling business model can seem tempting but is probably more of a gamble than anything else. Watch for stocks with a strong return on equity of 30% or more. This is pretty high but an ROE score summarizes a lot of other measures including income, debt, and profits within a single score and is easy to evaluate relative to peers.

Unless you are a true contrarian, most traders would agree that "the trend is your friend". Therefore - even in adverse market conditions - looking for a stock above its 200 day moving average is probably a good idea. The better the trend the better the momentum for a potential trade.

Finally constrain your price to $10 or less. Depending on market conditions the results may be very large or quite small so it probably makes sense to return to a search like this as the trend in the overall market changes. The results can be very rewarding and are easier to get than you may have thought previously.

We have listed the criteria we used to develop the search for these stocks below. You can also run the search yourself at finviz.com . Try to modify the criteria yourself to meet your specific investing style.

pSivida Corp ( PSDV )
ROE: 30.94%   SMA200: 55.28%   Performance (Quarter): 56.34%

China Electric Motor ( CELM )
ROE: 33.17%   SMA200: 1.99%   Performance (Quarter): 7.19%

8x8 Inc ( EGHT )
ROE: 36.78%   SMA200: 70.62%   Performance (Quarter): 68.15%

SMTC Corp ( SMTX )
ROE: 36.78%   SMA200: 70.62%   Performance (Quarter): 68.15%

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: CELM , EGHT , PSDV , SMTX

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