Money Senses

By Vincent Mao

Investor’s Business Daily
To some investors, buying stocks that trade under $10 may be a vice. But this week, we’ll show you some low-priced issues that have sound fundamental and technical action, which may warrant further examination.

While the thought of owning 1000 shares of a $10 stock sounds a lot better than owning 100 shares of an $100 issues, don’t get too bogged down in the total number of shares. The percentage return from investment should be your main concern.

Companies in the under $10-universe tend to be younger, smaller, lesser-known firms. And as we shall see in this week’s list, many of these have delivered strong earnings and sales growth, and are showing signs of accumulation.

To create this list, we screened for stocks with IBD SmartSelect Composite Ratings of 85 or higher, Stocks with high Composite Ratings generally have a strong blend of fundamentals and leading price performance within its industry group.

Stocks on the list also had to have an IBD Accumulation/Distribution (Acc/Dis™) Rating of A, B, or C. This rating (with A the best and E the weakest) tracks the amount of institutional buying (accumulation) and selling (distribution) in recent months by looking at daily price and volume changes. Price gains in above-average trading help lift the Acc/Dis Rating, while price declines in above-average volume hurt the rating.

Additionally, we screened for stocks with Earnings Per Share (EPS*) and Relative Price Strength (RS**) Ratings of 70 or higher. This ensures that the companies meet our criteria of strong sales and earnings growth as well as leading price performance.
Furthermore, since stocks trading under $10 can be thinly traded, we filtered out issues with an average daily volume of under 100,000 shares. And only stocks trading within 20% of their 52-week high were included (as of market close July 3).

1. Actuate (ACTU) - View IBD Stock Checkup

Composite Rating: 97*. The business software maker is hovering near five-year highs after breaking out of a flat base in late June. Earnings growth jumped 33% and 67% in the past two quarters. Analysts see a 30% rise in the company’s full-year profit. Estimates were recently revised higher. Accumulation/Distribution Rating: B+**

2. Metalico (MEA) - View IBD Stock Checkup

Composite Rating: 96. N.J.-based Metalico recycles scrap metal and turns it into over a hundred different products. On Tuesday, it completed the purchase of assets from Annaco. The firm has no debt and owned a return on equity of 18% in 2006. Accumulation/Distribution Rating: B+

3. ClickSoftware Technologies (CKSW) - View IBD Stock Checkup

Composite Rating: 93. In early May, the Israeli software maker reported first-quarter earnings of 2 cents, reversing a year-ago loss of a penny a share. Sales climbed 40% to $9.1 million. Full-year revenue is expected to rise about 20%. Accumulation/Distribution Rating: A

4. China Finance Online (JRJC) - View IBD Stock Checkup

Composite Rating: 91. The financial information provider is trying to come back from a pullback near its 10-week moving average. It recently delivered a 200% surge in Q1 profit, snapping a streak of lackluster results. Sales vaulted 184%, the biggest growth in nine quarters. Accumulation/Distribution Rating: B+

5. Newpark Resources (NR) - View IBD Stock Checkup

Composite Rating: 89. The Texas-based firm provides oilfield services to the energy industry. Last month, the company announced a new chairman. Newpark will report Q2 earnings on Aug. 3. Analysts see profit rising 38% to 11 cents a share. Accumulation/Distribution Rating: C+

6. Darling International (DAR) - View IBD Stock Checkup

Composite Rating: 89. In May, the grease recycler reported an 1,100% explosion in first-quarter profit. Revenue jumped 81%, the third straight quarter of accelerating growth. The company’s full-year profit is expected to soar 500%. Accumulation/Distribution Rating: B+

7. ARM Holdings (ARMHY) - View IBD Stock Checkup

Composite Rating: 89. The U.K.-based firm doesn’t make semiconductors, but it designs and licenses semiconductor architecture. ARM’s technology is used in cell phones, digital camera and video game consoles. J.P. Morgan recently upgraded the stock to overweight from underweight. Accumulation/Distribution Rating: B

8. B Square (BSQR) - View IBD Stock Checkup

Composite Rating: 89. After suffering several quarterly losses, B Square is beginning to turn things around. In May it reported its second straight quarterly profit, earning 6 cents a share vs. a year-ago loss of 9 cents a share. The software maker is trying to rebound from a nasty reversal last month. Accumulation/Distribution Rating: A-

9. Health Grades (HGRD) - View IBD Stock Checkup

Composite Rating: 67. The Colo.-based firm provides ratings to clients including hospital and insurance firms. After delivering flat earnings in fiscal year 2006, analysts see profit jumping 56% this year and 64% in 2008. Accumulation/Distribution Rating: B-

10. Hecla Mining (HL) - View IBD Stock Checkup

Composite Rating: 86. The company recently delivered a 250% surge in quarterly profit on a 34% rise in sales. Analysts expect a 111% increase in full-year earnings. Hecla is bouncing back after finding support at its 40-week moving average last month. Accumulation/Distribution Rating: B

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*The IBD SmartSelect Composite Rating combines all five SmartSelect Ratings into an all-in-one rating. Of the five, the Earnings Per Share Rating and Relative Price Strength Rating get the most weight; stocks’ percentage of their high price is also considered. Ratings are from 1-99, with 99 being the best.
**The Accumulation/Distribution Rating uses a price and volume formula to determine if a stock is under accumulation (buying) or distribution (selling) in the last 13 weeks. A signals heavy buying; E is heavy selling.