These Stocks Under $5 Are Poised To Explode

It commonly known that it is not the dollar price of a stock that matters, but rather it is the intrinsic value of that piece of a company that really matters. Simply put, when one acquires a share of a stock, he/she is purchasing a very tiny ownership piece of a specific company. Therefore, cheap stocks are not necessarily low-quality stocks. Let’s imagine for a second that Apple Inc. (NASDAQ:AAPL) considers splitting its stock again and opts for a 100-for-1 stock split. As a result, the stock would trade around $1.19 per share, which does not imply that the stock became more risky. Furthermore, it is also true that many investors ignore low-priced stocks for that reason, because they are believed to be quite risky. And that is the primary reason why one might stumble upon great buying opportunities in these seemingly overlooked corners of the equity markets. Having this in mind, we will lay out a list of five stocks under $5 that might represent great bargains at the moment. We pinpointed five such stocks that are widely held by the elite hedge funds tracked by Insider Monkey. These hedge funds have surely completed their due diligence and analysis on each of the stocks mentioned, which diminishes the odds of coming across incredibly risky stocks.

We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by more than 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

5. Zynga Inc. (NASDAQ:ZNGA)

Investors with Long Positions (as of June 30): 29

Aggregate Value of Investors’ Holdings (as of June 30): $619.41 Million

The number of hedge funds monitored by our team with stakes in Zynga Inc. (NASDAQ:ZNGA) decreased by two during the second quarter. Even so, these hedge funds amassed 27.70% of the company’s outstanding stock at the end of the June quarter. The stock of the company lost slightly more than 20% during the third quarter, but has advanced by nearly 7% since the end of September. The company’s Internet-based services for social games have not turned out to be as successful as many initially anticipated. In fact, Zynga has failed to develop products that could achieve the success of its widely-known social game, Farmville. The company is anticipated to release its third quarter earnings report on November 3, so we’ll see whether it managed to generate a profit in the third quarter. Ricky Sandler’s Eminence Capital was the largest shareholder of Zynga Inc. (NASDAQ:ZNGA) within our database at the end of the second quarter, owning 76.33 million shares.

4. Petroleo Brasileiro SA – Petrobras (ADR) (NYSE:PBR)

Investors with Long Positions (as of June 30): 31

Aggregate Value of Investors’ Holdings (as of June 30): $760.56 Million

Petroleo Brasileiro SA – Petrobras (ADR) (NYSE:PBR) also lost some of its appeal within the hedge fund industry, with the number of top hedge fund managers invested in the stock decreasing by four during the second quarter. At the same time, these investors accumulated only 1.30% of the company’s shares on June 30. Brazil’s state-run oil company, swallowed up by one of the biggest corruption scandals in the country, is believed to be moving in the right direction nonetheless, when it comes to its cost-cutting plan and tackling the corruption scandal which has engulfed it. However, the company’s shares lost nearly 52% during the third quarter, though they have bounced back by 14% since the beginning of the current quarter. Shah Capital Management, founded by Himanshu H. Shah, increased its stake in Petroleo Brasileiro SA – Petrobras (ADR) (NYSE:PBR) by 1.20 million shares during the latest three-month period, ending the quarter with 1.96 million shares.

3. Sirius XM Holdings Inc. (NASDAQ:SIRI)

Investors with Long Positions (as of June 30): 32

Aggregate Value of Investors’ Holdings (as of June 30): $1.47 Billion

The overall number of hedge funds monitored by Insider Monkey with stakes in Sirius XM Holdings Inc. (NASDAQ:SIRI) declined by two during the second quarter, with the remaining funds accumulating 7.20% of its outstanding shares. The shares of the largest radio broadcaster in the world are nearly 15% in the green year-to-date, and it appears that the stock will not trade under $5 for long. However, one should not overlook the fact that the stock currently trades at a forward P/E ratio of 26.27, compared to a median of 18.41 for all the companies included in the Standard and Poor’s 500. Just recently, the company reported record quarterly revenue of $1.17 billion for the third quarter, which was up by 11% year-over-year. Sirius XM Holdings’ net income increased to $167 million from $136 million reported in the same period a year ago. Peter Adam Hochfelder’s Brahman Capital held its position in Sirius XM Holdings Inc. (NASDAQ:SIRI) unchanged during the second quarter at 95.21 million shares.

2. Groupon Inc. (NASDAQ:GRPN)

Investors with Long Positions (as of June 30): 34

Aggregate Value of Investors’ Holdings (as of June 30): $220.28 Million

One less hedge fund had Groupon Inc. (NASDAQ:GRPN) in its portfolio at the end of the second quarter compared to the previous one. The hedge funds tracked by our team owned 6.50% of the company’s outstanding common stock on June 30. Groupon’s stock did not deliver a great performance during the third quarter, losing slightly more than 35%. Even more to that, the stock has been on a freefall since the beginning of the year, which does not appear to be nearing a halt any time soon. The company’s underperformance can be attributed to the fierce competition within its e-commerce industry. Just recently, Groupon launched a new program Groupon to Go, which offers food-delivery deals that enable its customers to save up to 10% on each order. Thus, it remains to be seen whether the upcoming earnings report will mark the company’s turnaround. Jim Simons’ Renaissance Technologies was the largest shareholder of Groupon Inc. (NASDAQ:GRPN) at the end of the second quarter within our database, holding 9.96 million shares.

1. California Resources Corp (NYSE:CRC)

Investors with Long Positions (as of June 30): 37

Aggregate Value of Investors’ Holdings (as of June 30): $703.87 Million

California Resources Corp (NYSE:CRC) received quite a lot of attention from the hedge funds observed by our team during the second quarter, as the number of top money managers with stakes in the stock increased by six quarter-over-quarter. It is also worth pointing out that these hedge funds stockpiled slightly more than 30% of the energy company’s outstanding shares on June 30. The stock lost 57% during the third quarter, but has gained more than 56% since the end of that quarter. The oil and gas exploration and production company is set to reveal its third quarter earnings report after the market close on November 5, which will disclose the information needed to assess the future potential of the company. George Soros’ Soros Fund Management owned 8.20 million shares of California Resources Corp (NYSE:CRC) at the end of the June quarter.

Disclosure: None