An informal polling of research analysts yields a group of companies that could reward investors in the coming year.
By Robert Holmes, TheStreet
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Cheap? These companies might be bargains
Sprint Nextel (S) and US Airways Group (LCC) may be among the best inexpensive stocks for 2012 -- if analysts are to be believed.
After a roller-coaster ride in equity markets in 2011, investors are more than willing to look ahead. Record volatility has forced investors out of riskier assets and into large-cap stocks with dividends -- or out of the market altogether.
While some investors will continue on a path of safety, others may find more opportunity (and risk) in stocks trading under $5, which typically don't receive attention from mutual funds because of their minuscule share prices. But many low-priced stocks were big winners in 2011, including TeamStaff (TSTF), Majesco Entertainment (COOL) and Adolor (ADLR).
Analyst recommendations are a good place to turn for information about potential winners. The following 10 U.S. stocks traded at less than $5 as of early December, when analysts were polled about which under-$5 stocks they liked for the coming year. (This slide show was published Dec. 28, 2011.)
Sirius XM Radio
Sirius XM Radio (SIRI) is a provider of satellite radio services, created in the 2007 merger of Sirius Satellite Radio and XM Satellite Radio.
Recent price: $1.82
2011 performance: 11%
Analyst consensus: Sirius XM shares had an impressive run in 2011, and analysts are looking for more upside in 2012, with six of seven researchers covering the company rating the stock a buy.
Bullish case: Jim Goss, an analyst for Barrington Research Associates, is among those recommending the stock. He has a price target of $2.40. Goss says the company could initiate a share buyback in 2012. "Its financial position continues to improve, positioning the company to seriously consider the return of capital to shareholders, potentially involving a share buyback as early as next summer," Goss wrote in a Nov. 28 research report.
Sprint Nextel
Sprint Nextel (S) is the third-largest wireless provider in the United States by subscriber count, behind AT&T (T) and Verizon Communications (VZ).
Recent price: $2.34
2011 performance: -45%
Analyst consensus: Sprint committed $15 billion in 2011 to bring the iPhone from Apple (AAPL) to its network. However, investors were flummoxed by Sprint's murky 4G expansion plan and were downright angry with a funding gap of as much as $7 billion.
Still, seven of 27 analysts covering the company are bullish on Sprint's prospects.
Bullish case: Jennifer Fritzsche, a senior analyst for Wells Fargo Securities who has an "outperform" rating on Sprint, says the company laid a foundation for growth when it provided funding to partner Clearwire (CLWR) to upgrade its network to LTE, or Long Term Evolution, the industry's standard technology.
Gastar Exploration
Gastar Exploration (GST) is engaged in the exploration, development and production of natural gas and oil in the United States and Australia.
Recent price: $3.20
2011 performance: -26%
Analyst consensus: The potential for mergers and acquisitions has made natural-gas companies a speculative play for traders. Analysts covering the company say there is opportunity for a big win in 2012; four of six rate the stock a strong or moderate buy.
Bullish case: David Deckelbaum at KeyBanc Capital Markets recently reiterated his "buy" rating and $5.75 price target on the stock, saying the company's third-quarter production miss obscured the potential for progress in its operations in the Marcellus Shale gas play and elsewhere.
Abraxas Petroleum
Abraxas Petroleum (AXAS) is engaged in the exploration and production of crude oil and natural gas along the Texas Gulf Coast, in the Permian Basin of western Texas and in Wyoming.
Recent price: $3.32
2011 performance: -27%
Analyst consensus: The company's production and revenue declined in 2011, but analysts are optimistic about in 2012; all eight researchers covering the company have buy recommendations on the stock.
Bullish case: Marcus Talbert of Canaccord Genuity reiterated his "buy" call and $5.50 price target on Abraxas in November after the company swung to a profit in the third quarter thanks to a rise in production.
MEMC Electronic Materials
MEMC Electronic Materials (WFR) manufactures and sells silicon wafers for use in the semiconductor and solar-energy sectors.
Recent price: $3.99
2011 performance: -65%
Analyst consensus: Shares of MEMC Electronic Materials were on a steady downward slope in 2011, along with most other solar-related stocks. MEMC is dealing with oversupply issues that have resulted in a weaker-than-expected earnings outlook.
Just six of 19 analysts covering the company have buy ratings on the stock. Bulls are banking on a rebound in solar wafer demand and prices in 2012.
Bullish case: Vishal Shah of Deutsche Bank reiterated his "buy" rating with a $10 price target after MEMC swung to a third-quarter loss. The company blamed its loss on the impact of restructuring charges and other non-operating items. Income and revenue were stronger than expected in the period.
US Airways Group
US Airways Group (LCC) is the holding company for US Airways, one of the largest airline operators in the United States.
Recent price: $5.45
2011 performance: -46%
Analyst consensus: The stock was trading below $5 when analysts were asked to name their favorite under-$5 picks for 2012, but a strong December moved it above that benchmark. US Airways shares traded above $10 at the beginning of 2011, but rising jet-fuel prices and shrinking profits made for a tough year.
Seven of 10 analysts covering the company have a "strong buy" rating on the stock.
Bullish case: After US Airways reported quarterly numbers in October, Deutsche Bank analyst Michael Linenberg reiterated a "buy" call on the stock, with a price target of $12, noting the company's improved forecast for revenue growth.
Hercules Offshore
Hercules Offshore (HERO) is a provider of shallow-water drilling and other services to the oil and natural gas industry.
Recent price: $4.40
2011 performance: 26%
Analyst consensus: Shares of Hercules Offshore were buffeted in 2011 by a pair of deals. The stock surged in February after the company announced it would acquire nearly all of Seahawk Drilling's assets. Gains were pared in September after Hercules said it had increased its stake in Discovery Offshore.
Six of 13 analysts covering the company have buy ratings on the stock.
Bullish case: Credit Suisse analyst Brad Handler is optimistic that improving shallow-water trends in the Gulf of Mexico will benefit Hercules Offshore. The analyst has a price of $6.50, well above the average target for this company.
Hersha Hospitality Trust
Hersha Hospitality Trust (HT) is a real-estate investment trust that own 73 hotels, primarily in the Northeast and on the West Coast.
Price: $4.88
2011 performance: -26%
Analyst consensus: Hersha Hospitality shares were little changed for the first half of 2011 until a sudden drop-off in August shortly before the company announced it would sell 18 hotels to Starwood Capital Group for $155 million to reduce its debt load.
Nine of 14 analysts covering the company have buy ratings on the stock; the others recommend that investors "hold" the shares.
Bullish case: Bank of America/Merrill Lynch analyst Shaun Kelley has a "buy" rating on Hersha, which he reiterated in November after the company announced it would buy the Courtyard Miami Beach Oceanfront hotel for $95 million.
Power-One
Power-One (PWER) is the world's second-largest provider of solar inverters. The company is also among the world's biggest providers of power-conversion and power-management solutions.
Recent price: $3.91
2011 performance: -62%
Analyst consensus: Power-One investors were licking their wounds in 2011; the stock fell from $12 in February to about $4 to end the year. Power-One has suffered from continually guiding forecasts below analysts' estimates. The company most recently saw a drop in third-quarter profit and offered a weak outlook for the fourth quarter because of the global macroeconomic uncertainty that has dented renewable energy companies around the globe.
Eight of 14 analysts covering the company have buy ratings on the stock, and the remaining six have a "hold" recommendation. The average price target of $6.29 implies significant upside potential over the next 12 months.
Bullish case: Cantor Fitzgerald analyst Dale Pfau in late October reiterated a "buy" rating on the stock, noting that Power-One continues to gain market share.
Magnum Hunter Resources
Magnum Hunter Resources (MHR) is an independent oil exploration and production company.
Recent price: $5.49
2011 performance: -24%
Analyst consensus: Magnum Hunter Resources is another stock that was trading below $5 when analysts were asked for their favorite under-$5 picks for 2012. It's a volatile stock because of the company's exposure to natural gas prices.
The company gets high marks from analysts for the acreage it controls in the Marcellus Shale region, a hot spot for natural gas drilling. The stock was crushed in August, dropping from above $7 to below $5 in a matter of days, after the company agreed to pay $57 million for exploration rights to acreage in North Dakota.
Fifteen of 17 analysts covering the company have buy recommendations. The average price target is $7.30.
Bullish case: Canaccord Genuity's Talbert recently upped his price target on the stock to $8 and reiterated his "buy" rating, saying production levels are expected to increase as new wells are completed.
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