Stocks Under $10 Portfolio: Our Cash Position Provides Room to Maneuver

 | Oct 02, 2016 | 12:00 PM EDT
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The following is an excerpt from the Stocks Under $10 Weekly Roundup originally sent to Stocks Under $10 subscribers on Sept. 30. Click here to learn more about this dynamicportfolio managed by David Peltier.

It was a volatile week for U.S. stocks, as the third quarter came to an end on Friday. The broader market averages ticked lower, as traders were spooked by liquidity fears at Deutsche Bank and the potential for financial contagion to spread across the globe. In addition, institutional investors were busy position their portfolios for a quarterly snapshot of holdings. 

We used the selloff this week to add to our position and improve our cost-basis in Sonus Networks (SONS) on Thursday. On the other hand, we booked profits in Ballantyne Strong (BTN) on Tuesday and lowered our rating from Two to Three.

We also added Crocs (CROX) to the Bullpen on Wednesday. The footwear producer has lagged the broader market year-to- date, but insiders have recently bought shares on the open market. In addition, the company has a pristine balance sheet and can continue to expand margins in the coming quarters, if sales recover.

We have a historically large 40% of the model portfolio in cash, as we've consistently booked profits throughout the year. We have room to add a few new names for the model portfolio, and will continue to scour the universe of low-dollar stocks for buying opportunities.

As we enter the fourth quarter, the IPO market remains healthy. Four new issues began trading this week, highlighted by enterprise cloud storage name, Nutanix (NTNX) , which popped 84% higher in its first day. Another six companies are expected to debut in the first week of October, led by waste collection and recycling firm, Advanced Disposal Services  (ADSW) .

Looking ahead to next week, on the economic front, we'll get a look at monthly auto sales on Monday. Wednesday offers a look at the purchasing managers' index and durable goods orders. It all leads up to the September employment report on Friday. Economists are calling for the addition of 170,000 non-farm payrolls in the month, up from 151,000 in August and the headline unemployment rate to remain at 4.9%.

The FOMC will likely be paying close attention to these data and fed funds futures are currently pricing in a 10% chance of an interest rate hike in November and 57% probability by the end of the year.

-- Peltier is also manager of Dividend Stock Advisor, a newsletter service that seeks solid stocks that are likely to both increase dividends and appreciate in value. Click here to get access to a portfolio that lays out a strategy for safe, sound, money-making solutions from companies you will recognize.

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