With major indexes bumping along at record highs, there aren't many stocks that remain priced below $10 per share today. In addition, investors have to be careful when shopping at this end of the market since there are often good reasons -- like sharply declining sales or collapsing profit margins -- why Wall Street has left a company out of the recent rally.
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That said, fortunes can change and stocks aren't always doomed to stay in the single digits forever. Here are a few sub-$10 stocks from companies with steady or improving business fundamentals that investors might want to add to their watch lists.
The satellite radio leader
Sirius XM (NASDAQ: SIRI) recently passed $5 per share following a fourth-quarter earnings report that beat management's guidance across a range of key metrics. The satellite radio leader reached a record high annual sales mark of $5 billion in 2016 as it added 1.75 million net subscribers. Profits rose at a much faster pace, up 46% to $746 million. And for investors like billionaire Warren Buffett, who prefer strong cash flow, there's plenty to like about this company. Sirius logged a 15% pop in free cash flow to $1.5 billion last year.
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CEO Jim Meyer and his executive team are forecasting another year of records in 2017 as the business adds 1.3 million paying subscribers and achieves solid growth in average revenue per user. Together, these trends should push adjusted earnings to $2 billion -- up from $1.88 billion last year. Investors should also see another year of solid free cash flow generation, along with hefty returns to shareholders in the form of stock repurchases and dividends. If Sirius XM continues improving its content portfolio while making smart investments in its satellite network, its business should have many more record years ahead.
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A rebounding wireless titan
Wireless giant Sprint (NYSE: S) has seen its stock soar to nearly $9 per share from below $3.50 last February. It's easy to see why Wall Street is getting more optimistic about this business. The company last quarter managed its best showing of postpaid phone additions since 2012, with 368,000 new subscribers added to the rolls. Executives raised both their fiscal 2016 earnings and sales targets following that result, and now see adjusted earnings touching $9.85 billion for the year. "Sprint is turning the corner," CEO Marcelo Claure declared in a press release to investors in late January.
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The company is still far from posting positive bottom-line earnings results. In fact, net loss is still running at an over $1 billion annual rate as it pays over $2 billion in interest expenses.
Yet, with operating revenue improving year-over-year in each of the past two quarters, there are signs that the business is stabilizing. Sprint has also made good progress at slashing costs so that it has more operating earnings available to direct toward its massive debt burden. Continued market share gains in 2017 would go a long way toward setting Sprint back on a path to profitability, which would allow shareholders to reclaim a significant portion of the losses they've endured over the past decade.
A promising advertising platform
After leaving the daily deals specialist for dead, investors are starting to warm back up to Groupon's (NASDAQ: GRPN) stock. Shares are up over 30% so far this year after the company announced improving business trends and an aggressive outlook for growth ahead.
Billings jumped 11% in its core U.S. market last quarter as Groupon added enough active customers to mark its best result in four years. The acquisition of LivingSocial, which Wall Street initially judged as a terrible move, has helped produce a healthy pop in both customer engagement and transaction trends.
There's no question that Groupon has a long way to go before it can claim a real rebound. The profit outlook is especially weak given that management's priority is to spend cash on improving the user shopping experience. Yet the team's strategy of exiting underperforming markets to focus on high-profit areas like the U.S. appears to be working, and so it's at least possible that a solid business -- albeit at a much smaller market capitalization than its 2012 peak of over $16 billion -- could emerge from what has seemed over the last few years to be a broken investment thesis.
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