Crossing the Five-Dollar Line

 | Jul 05, 2012 | 9:30 AM EDT
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Individual investors have some core advantages over institutional investors. Among them are that they don't have to engage in contortions like quarter- and year-end window dressing, they can afford to be more patient and can hold a much higher percentage of cash when they are negative on the market and believe it will pullback. Managers rarely can afford that luxury as they are always trying to beat or keep up with whatever benchmark their performance is measured against.

Another key advantage individual investors have is the ability to buy stocks selling at under $5, which many institutions are prohibited to do in their bylaws. One strategy I have employed over the years is finding stocks just under $5 with improving growth and/or valuation stories that have just crossed over their 200-day moving average. I have found many times that once the stock clears $5, it can attract new institutional investors that can push the stock the next leg higher. Two stocks that look interesting right now employing that strategy are below.

First Busey Corp. (BUSE) operates as the bank holding company and has 33 locations in Illinois, seven locations in southwest Florida, and one location in Indianapolis. It has been around since 1968.

Four reasons BUSE is a solid buy at just under $5 a share

  • The company provides a solid dividend yield of 3.2% and has significant amounts of net cash on the balance sheet.
  • Insiders have been active buyers of the stock in 2012. Several made purchases totaling some 40,000 new shares at around current prices in February.
  • The stock crossed over its 200-day moving average within the last week. BUSE was selling north of $20 a share prior to the financial crisis.
  • The company more than doubled operating cash flow between 2009 and 2011, and growth in earnings and revenues are set to resume in 2013.

Affymetrix (AFFX) produces consumables and systems for genetic analysis in the life sciences and clinical healthcare markets worldwide.

Four reasons AFFX is solid speculative pick at under $5 a share:

  • The company is in the midst of staging an impressive turnaround in earnings. Affymetrix lost $0.30 in 2011, but is projected to lose $0.20 in 2012 and then breakeven in 2013.
  • Affymetrix has a solid balance sheet that has approximately one third of its market capitalization in net cash. It crossed over its 200-day moving average within the last week.
  • AFFX has good growth ahead of it. Analysts have it growing sales around 15% for both 2012 and 2013.
  • Consensus earnings estimates have been revised sharply higher in the last two months for 2012 and 2013. Although the company has had a loss in each of the last three years, operating cash flow has consistently been in the black and operating cash flow quadrupled between 2009 and 2011.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...
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