Last week, the S&P 500 marked a 1.03% loss against a backdrop of AI bubble worries and Middle East re-escalation. In spite of those factors, expectations are high. Analysts forecast an average Q2 earnings growth rate of 23.6% for the S&P 500, which would mark the second consecutive quarter of growth exceeding 20%.
The problem at hand is a well-known one. Valuations are stretched, the big names tend to be overcrowded, and investors are left with having to pay a steep price for that growth.
One of the simplest ways to solve this dilemma is to identify underappreciated tickers. That is to say, stocks with solid fundamentals that have those same stellar growth prospects, but which have gone unnoticed for one reason or another. And one of the best places to look for tickers like that is in the under $10 section.
Cheap stocks tend to be associated with businesses that have fallen from grace, speculative moonshots, cash-burning companies, and perpetual value traps. And while it is true that you’ll find a lot of tickers like that trading under $10, there are exceptions.
The only question that remains is how to identify those exceptions in a timely manner. Well, the place to start is ….
Under $10 Stock Strategy
Our in-house quant rating system looks at 4,600 stocks each day and grades them using a combination of 115 unique metrics and factors. This provides a holistic, balanced overview of a stock’s fundamental profile, and it’s all boiled down into a simple, intuitive metric — a stock’s Zen Rating.
A Zen Rating of A, equivalent to a Strong Buy recommendation, is only given to the top 5% of stocks. That narrows your search down, but it still leaves 230 stocks for you to consider, compare, and contrast. Thankfully, you can make your research process even more efficient — by taking a look at one of our exclusive Zen Strategies.
These are 11 carefully constructed stock portfolios, and each consists of just 7 tickers selected to deliver outsized returns.
Today, we’ll be taking a look at a portfolio with an all-time annual return of 35.96%. This year, it’s on a roll — having provided a 57.27% gain since the start of the year, and a 7.6% return in the last 30 days. This week, the spotlight is on our Under $10 Stock Strategy.
AudioCodes (AUDC)
AudioCodes provides voice, contact center, and conversational AI applications to enterprises. Right now, AUDC shares rank in the top 2% of the equities we track, giving them a Zen Rating of A. As of the time of writing, AudioCodes stock is trading at $9.58.
Thanks to significant smart money inflows and a history of strong execution, AUDC ranks in the top 25% of stocks for Sentiment and in the top 23% for Safety. The balance sheet is another strong point — netting AudioCodes a spot in the top 12% of the stocks we track for Financials.
The crown jewel here, however, is the valuation. AUDC trades at a price-to-earnings growth (PEG) ratio of 0.32x, and ranks in the top 5% of the market in terms of our Value Component Grade rating.
As far as weaker ratings go, the stock gets a C grade for Growth and Momentum. But since it still lands mid-pack in those regards, it’s not really a huge knock.
On August 4, AudioCodes will release its next quarterly report. Since the time of the last earnings call, shares have rallied by 12%. So a similar move could be in play if the business beats estimates.
Aveanna Healthcare (AVAH)
Aveanna Healthcare is a diversified home care platform providing pediatric and adult healthcare services as a lower-cost alternative to hospitalization. AVAH currently ranks in the top 2% of the stocks we track for overall fundamentals, and it’s the 2nd highest-rated stock in the A-rated Medical Care Facility industry. As of the time of writing, AVAH is trading at $9.45.
The fundamental profile here is remarkably well-balanced. Momentum and Financials both come in at the top 24% of our system. When it comes to our Artificial Intelligence rating, which uses a neural network trained on more than 20 years of market data to spot early signs of outperformance, Aveanna Healthcare ranks in the top 17%.
With that being said, the stars of the show with AVAH are Value and Sentiment. In terms of the former, it ranks in the top 12%. When it comes to the latter, it ranks in the top 1%. Put it together, and we have a financially-sound business showing early signs of outperformance, coupled with positive price action, an appealing valuation, and smart money support.
Only one Component Grade here is unremarkable, and that’s Growth. In that area, AVAH ranks in the top 32% . Not terrible by any stretch of the imagination, but definitely some room for improvement on that front.
And just like our previous pick, AVAH is holding its next earnings call soon — on August 13. The business has beaten estimates for 5 quarters in a row, and share prices have rallied by 27% since the time of the latest earnings call.
Fortress Biotech (FBIO)
Our third and final pick for this week is Fortress Biotech, a drug company that develops and sells medicines, with a significant concentration in skin-condition treatments, plus a pipeline of experimental drugs in cancer and rare diseases. FBIO ranks in the top 2% of the stocks we track. As of the time of writing, Fortress Biotech shares are trading at $3.34.
Let’s begin with the Growth Component Grade rating, where Fortress Biotech shares rank in the top 23%. On top of that, we have an outstanding balance sheet, which puts FBIO in the top 7% of everything we track for Financials.
However, what makes our final pick special is the convergence of an extremely appealing valuation and significant smart money inflows. Fortress Biotech is in the top 9% of the 4,600 stocks we track when it comes to the Value Component Grade rating, and in the top 1% with regard to Sentiment.
The downside here is that the stock has a low Safety rating. It has rallied by more than 50% in the past 365 days, so pullbacks are possible — but the long-term growth trajectory is still intact, and the overall fundamentals far outshine the lone drawback.
And just like our previous picks on this week’s list, FBIO’s next quarterly report is coming soon, on August 17, to be exact. The last earnings call was on May 14, and Fortress Biotech shares have rallied by 45% since then.
Interested In More Great Stock Picks?
The 3 stocks highlighted above are just a fraction of what you get from our proven Under $10 Stock Strategy.
That’s because each day our system recalibrates — and Zen Strategies members get access to the top 7 small cap stocks based on 115 different parameters that point to outperformance.
See all Top 7 Under $10 Stocks here >
However, maybe none of the stocks you’ve seen here have caught your eye. Perhaps you would like to see all 11 of our market beating strategies including Growth, Momentum, Value, and our coveted AI Factor model.
Each featuring the top 7 stocks.
Each featuring tremendous performance
We spell it all out in this timely presentation below that lives up to its name:
10 Minutes a Month to Beat the Market >
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