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The Best Stock Under $10

Paul Sullivan

Well, they're getting the red carpet set up in front of the Kodak Theater on Hollywood Boulevard, and the excitement is building in anticipation of the 81st Academy Awards on Feb. 22.

At the very least, it puts an end to the awards show season, and we can get on with 2009.

But it's hard not to get swept up in the excitement of the granddaddy of them all. It would be even more exciting, IMHO, if there was an award for best movie company stocks along with Best Costume Design and Special Effects, something like Best IPO Spinoff by a Major Studio.

We can only dream. And in honour of the Oscars and the awards season in general, let's dream about the Best Stock Under $10. This is a breakthrough category in 2009, as there are a lot more good stocks under $10 than there were last year.

In fact the usual bargain basement favorites have some pretty formerly august company, such as Bank of America, once the world's second largest bank, trading today at $5.01. How the mighty have fallen. It's very tempting to nominate one of these post-Wall Street-meltdown bottom feeders. I mean, if Bank of America fails, so does America.

And I honestly believe America is a long way from failing. So five bucks is not too much to bet on America. And this time next year, who knows, you could look like a genius. Either that or you won't be able to buy a cup of coffee at

Starbucks. Here's another stock that's under $10. It's hard to believe that it will stay there when it's done nothing but grow over the past 20 years and the infrastructure is built you could trip over a Starbucks walking down any street in the nation. Still, there's a lilt of desperation in CEO Howard Schultz's latest announcements: how about Starbucks instant coffee and Starbucks value meals? I guess it works for McDonald's, so why not Starbucks? And McDonald's is trading at $55. Ask yourself; is a Big Mac worth $45 more than a grande latte?

So let's put Starbucks among the nominees.

When the going gets tough, the tough buy mining stocks, and these are the toughest times, which call for gold. I think owning a good gold mining company makes more sense than owning the commodity itself, as it's like buying a commodity expert who has a ready supply in his basement. The question is: what's the best gold mine under $10? How about Eldorado Gold, which is trading today on the AMEX at $8.92 (U.S.)? (I'm cheating a bit.) What makes this stock a little more interesting than the comparably priced Yamana Gold (NYSE:AUY $9.52) is that it's one of the stocks just recommended by Motley Fool's Hidden Gems 5 Stocks Under $10. Here's what stock picker Rick Aristotle Munarriz said at the end of January about Eldorado (NYSE: EGO) :

"I've never been much of a gold bug, though I can appreciate the rising popularity of previous metals as an inflation hedge in recent years. Eldorado is profitable and growing nicely."

For what it's worth, New York broker Rodman and Renshaw also just recommended Eldorado on Feb. 12, which might put you off, but gold closed at a 7-month high today, and Eldorado is simply doing very well, operating (until today) under the radar.

Here's the latest statement from CEO Paul Wright, issued January 22:

"We are extremely pleased to be one of the lowest cost pure gold producers reporting, with a strong balance sheet, no debt, and unhedged. We were the top performer on the S&P/TSX composite index in 2008 with share appreciation of 65.5 per cent." The Company is planning to produce 325,000 to 340,000 ounces of gold in 2009 at a cash operating cost of approximately $300 per ounce, which indicates another profitable year on the horizon, especially because it has one of the lowest exposures to base metals among the Canadian gold mining companies.

Then there's technology. Remember technology? People used to invest in technology stocks. But then the legitimate tech stocks got all jumbled up with the dotcom bubble stocks and we're still trying to sort them out. But there's one company, like Eldorado based right here in Vancouver, that I can't believe is still trading below $10. I'm talking about PMC-Sierra, which turned a Q4 profit in December, if you can believe that.

PMC-Sierra is a manufacturer of the communications chips that allow all of our devices to communicate with each other. It makes 350 different kinds of these devices: the 21st century Internet runs on PMC-Sierra how can it be a $5 stock? Currently there are 7 buy recommendations and 8 holds attached to this stock, but it beat the street on its Q4 results, and I have a good feeling about this one.

Finally, this wouldn't be a piece about sunshine without a solar energy stock, and as you might expect, all of these companies have taken a beating as befits a developing sector in a bear market, but there's one stock that is simply cheap whatever your criteria, and that's the Chinese solar panel leader Suntech, trading at an anemic $8.72 (NYSE:STP).

This is one of the largest solar panel makers in the world, sitting on top of the largest market in the world, and green energy technology, according to US President Barack Obama, will save the world.

So what that Suntech laid off 10 per cent of its workforce at the end of 2008, and is postponing plans to hire another 2000 employees? The company expects an oversupply and weak demand in the world market will mean 25-30 per cent price reductions in 2009. Be not afraid: the sun will surely shine again. Ever hear of global warming? According to its latest guidance, Suntech expects to post revenue of $405 million to $420 million for the quarter that ended in December, up from earlier estimates of $345 million to $360 million. For the year, revenue will come to $1.91 billion to $1.93 billion, higher than the earlier $1.87 billion estimate.

So, there you have the nominees: Bank of America, Starbucks, Eldorado, PMC-Sierra and Suntech. Unlike the Oscars, you're going to have to wait until well past this coming Sunday to know the results. And please, remember the speculative risks that come with stocks that trade under $10. But if we open the envelope next year at this time, it will be interesting to see the winner. I hope it's my portfolio!

Paul Sullivan is a longtime Vancouver journalist and president of Sullivan Media. He also writes for The Globe and Mail.

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