All three major U.S. indexes continue to hit new highs to start November on the back of positive U.S.-China trade negotiation updates, a third Fed interest rate cut, and better-than-feared quarterly earnings results. With this in mind, Wall Street will likely continue to climb into stocks, at least for now.
So why shouldn’t investors think about adding a few low-priced stocks to their portfolios? At Zacks, we try to avoid labeling stocks as “cheap” or “expensive.” Instead, we opt to look beyond a stock’s face value, and our system puts an emphasis on earnings estimate revisions to find stocks that will hopefully be winners for investors.
Stocks trading under $10 can be more volatile than their pricier peers. But investors can still scoop up big returns with the right low-priced stocks. Today we found three stocks using our Zacks Stock Screener that fall into the broader “technology” industry that investors might want to buy with Wall Street at new highs in November…
USA Technologies, Inc. USAT
Prior Close: $7.00 USD
Countries around the world rely less on cash for small transactions than ever before and this is where USA Technologies comes in. The company “provides end-to-end electronic payment and M2M and IoT solutions for the small-ticket, unattended retail market.” In other words, USA Technologies enables vending machines, laundromats, arcade games, taxis, and many other traditional cash-only machines or businesses to join the cashless revolution, by allowing them to accept credit and debit cards and other electronic payment options.
Interested investors should note that CEO Stephen Herbert recently stepped down amid the start of a proxy battle and the firm in early October reported up-to-date financial results for fiscal 2018 and 2019, after much delay, due to internal audits. The company also adopted a “Short Duration Shareholder Rights Plan” last month. “The rights will not prevent a takeover, but should encourage anyone seeking to acquire the Company to negotiate with the Board prior to attempting a takeover.”
Clearly, this situation might make many investors far too nervous. Yet, a possible buyout could be enticing for others, especially for a cheap stock. USA Technologies is a Zacks Rank #2 (Strong Buy) at the moment and is part of our Computer - Integrated Systems that rests in the top 30% of our 253 Zacks industries. Our current Zacks Consensus Estimates call for the company’s fiscal 2020 revenue to jump over 27%, with FY21 projected to come in 18% higher at $199.4 million. The company’s adjusted earnings are also expected to soar in 2021. Despite the uncertainty, USAT stock is still up over 80% in 2019 and sits far below its recent August 2018 highs of around $16 per share, which could give it room to run.
Digital Turbine, Inc. APPS
Prior Close: $6.86 USD
Moving on, Digital Turbine’s situation appears more stable than its under $10 tech peer. The Austin, Texas-based company connects OEMs, mobile operators, and publishers with advertisers and app developers, and its shares have skyrocketed from under $2 last November to its current $6.84 per share price point. And the firm just landed on Deloitte's Technology Fast 500 list, which ranks the 500 fastest growing technology companies in North America, for the fifth straight year, coming in at No. 63.
More importantly, Digital Turbine topped our quarterly (Q2 fiscal 2020) estimates on both the top and bottom lines on November 4. APPS saw its revenue surge 37% and its adjusted earnings pop from $0.01 in the year-ago period to $0.05 per share. “Spearheaded by growing partner adoption of our leading mobile platform and robust worldwide demand from advertisers, we achieved strong financial results, generating more than $4.5 million in Adjusted EBITDA and $5.7 million in free cash flow during the quarter,” CEO Bill Stone said in prepared remarks recently.
Looking ahead, Digital Turbine adjusted Q3 earnings are projected to climb 50% on the back of 24% stronger sales. Meanwhile, the company’s full-year fiscal 2020 EPS figure is expected to soar 150% on over 29% revenue expansion, with double-digit top and bottom growth projected to follow in 2021. Digital Turbine is a Zacks Rank #2 (Buy) right now that sports an “A” grade for Growth in our Style Scores system and its valuation picture has become far more reasonable recently.
NeoPhotonics Corporation NPTN
Prior Close: $8.50 USD
Like Digital Turbine, NeoPhotonics is coming off a strong quarter that saw it beat both our top and bottom line estimates on Halloween. The company’s adjusted Q3 2019 earnings came in at $0.11, which crushed our $0.02 estimate and marked a massive improvement from the year-ago period’s loss. NPTN shares have soared 30% since the end of October and are up nearly 100% since its Q2 release in early August—from $4.32 to Thursday’s $8.49.
NeoPhotonics designs and makes optoelectronic solutions utilized in high-speed communications networks across telecom and datacenters. Following its third-quarter earnings release, NPTN has seen its earnings estimate revision activity surge completely in the right direction for Q4, fiscal 2019, and 2020. This positivity helps NeoPhotonics earn a Zacks Rank #1 (Strong Buy) at the moment. NPTN also rocks a “B” grade for Growth and an “A” for Momentum and is part of our Semiconductor – Communications industry, which rests in the top 25% right now.
The San Jose, California-based firm’s executives are positive about the road ahead, despite continued trade uncertainty. CEO Tim Jenks said last week that the firm believes “the macro trends of the industry favor” its “core capabilities.” Peaking ahead, NPTN’s adjusted Q4 FY19 earnings are projected to climb 100% on roughly 7% stronger sales. The company’s full-year fiscal 2019 sales are then expected to jump nearly 9%, with 2020 expected to come in 7% higher. This top-line expansion is projected help NeoPhotonics’ adjusted earnings surge.
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