Best Stocks to Buy Under $10 a Share

While the stock market has been on a terrific run since March, most of the big gains have been tilted toward stocks with low share prices. The effect has been dramatic. Stocks with the lowest prices have rallied the most, while stocks with high prices have climbed the least.

For example, let’s take a look at Citigroup (C). At one point in early March, the banking giant dropped below $1 a share. Just the other day, the stock hit $5 to mark a 400% gain in less than six months. Bank of American (BAC) is up over 600% from its 52-week low. It’s not just banks, either; Ford Motor (F) got as low as $1.50 and recently traded as high as $8.86.

Looking back to the start of the last bull market in 2003, there were 42 S&P 500 stocks under $10 a share and they were a good place to invest then, too. Through July 31, 2008, those 42 stocks were up an amazing 439%

More on Top Stock Performers That Sell for $10 a Share

Now let’s take a look at some of my favorite low-priced stocks to buy right now. For starters, we’ll go outside the U.S. to highlight Israel’s IncrediMail (MAIL). This emerging small-cap firm develops software that lets users customize e-mail, using animation, 3D effects, handwritten signatures and sound effects.

In today’s wired world, IncrediMail is capitalizing on the fact that everyone from teens to grandparents wants to reach out and touch someone with something a little more impressive than words on a computer screen. The company’s flagship IncrediMail Xe is a free platform to introduce people to the product. It generates revenue via the advertising and promotional links users are exposed to as they work. The company also offers IncrediMail Premium that allows for custom graphics, a voice message recorder and customer support to make the most of the tools.

It’s a simple strategy, but a very profitable one: In the second quarter, IncrediMail’s sales rose 29% to $6.7 million, compared with $5.2 million in the same quarter in 2008. During the same period, the company’s earnings rose 271.4% to $2.4 million or 26 cents per share, compared with seven cents per share! IncrediMail plans to introduce IncrediMail 2 during the third quarter of 2009—an upgraded tool with more bells and whistles—which could give the stock the momentum to attain record results later this year. I rate IncrediMail an A, making it an outstanding buy.

For my other favorite low-priced stock, we need to go at the speed of light. Qwest Communications (Q) spans the globe with its high-capacity broadband fiber-optic network.

The company is a leading provider of local phone coverage to a big patch of the western U.S. (it’s no surprise that in Seattle, the home of the Seahawks is called Qwest Field). Qwest also provides long-distance and international calling, as well as broadband data, voice, and video services to business customers.

Just a few weeks ago, Qwest reported second-quarter earnings of 12 cents a share, which topped Wall Street’s estimates of 10 cents a share. Thanks to cost-cutting, the company was able to grow its earnings by 18%. Qwest’s operating expenses dropped roughly 8% to $2.6 billion from $2.8 billion. I was pleased to see that Qwest is cutting back on expenses for senior executives.

Even though the stock is currently going for less than $4 a share, I think it’s an outstanding buy. I rate Qwest Communications an A. What I also like about Qwest is the dividend, currently yielding close to 9%. That’s about twice the yield you’ll find on a 30-year Treasury bond.

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