Investing

Merrill Lynch Has 5 Stocks Rated Buy Under $10 With Massive Upside Potential

Lee Jackson

Published: September 15, 2018 7:10 am

Last Updated: January 11, 2020 5:52 pm

While Most of Wall Street focuses on large and mega-cap stocks, as they provide a degree of safety and liquidity, many investors are limited in the number of shares they can buy. Many of the biggest public companies, especially the technology giants, trade from the low to mid hundreds, all the way up to over $1,000 per share. At those steep prices, it’s pretty hard to get any decent share count leverage.

Many investors, especially more aggressive traders, look at lower-priced stocks as a way to not only make some good money but to get a higher share count. That can really help the decision-making process, especially when you are on to a winner, as you can always sell half and keep half.

We screened the Merrill Lynch research database and found five Buy-rated stocks trading under the $10 level that could provide investors with some solid upside potential. While much better suited for aggressive accounts, they could prove exciting additions to portfolios looking for solid alpha potential.

AK Steel

This stock has been hit recently and offers investors a great entry point at current levels. AK Steel Holding Corp. (NYSE: AKS) is the sixth largest U.S. steelmaker and has the capacity to produce nearly 7 million tons of a total 110 million tons of U.S. steel capacity. The company produces flat-rolled carbon, stainless and electrical steel and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled and hot-rolled carbon steel products, as well as specialty stainless and electrical steels in sheet and strip forms.

The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial and construction markets, and it buys and sells steel and steel products, and other materials, and produces metallurgical coal from reserves in Pennsylvania.

Merrill Lynch has a $6 price target on the shares, and the Wall Street consensus target is $5.21. The stock traded on Friday at $4.35 a share.

Arcos Dorados

This company may be way under the radar, but it has one of the best products imaginable in terms of name recognition. Arcos Dorados Holdings Inc. (NYSE: ARCO) is the world’s largest McDonald’s franchisee and Latin America’s leading quick-service restaurant operator. The company has exclusive rights to operate or subfranchise restaurants in over 20 countries in Latin America and the Caribbean. Brazil represents about half of revenues and nearly 60% of EBITDA.

Arcos Dorados was created in 2007 via the acquisition of McDonald’s assets in the region. The company completed a $1.4 billion initial public offering in April 2011. The company has posted solid results this year, with Mexico leading the way for momentum.

Merrill Lynch has a $10.50 price target, though the consensus target is $10.95. The shares traded on Friday at $6.20.

Kinross Gold

More aggressive investors may want to consider this smaller cap gold miner. Kinross Gold Corp. (NYSE: KGC) engages in the acquisition, exploration, development and production of gold properties. The company’s gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Chile, Ghana and Mauritania. It also produces and sells silver.

Merrill Lynch noted this in August when the company reported earnings:

The company reported an in-line quarter from an adjusted earnings, production and cost point of view and reaffirmed its 2018 operating guidance. However this laudable performance was overshadowed by the “pausing” of the Tasiast Phase Two expansion due to the Government of Mauritania seeking greater benefits for the country. KGC noted that it continues to engage the Government with respect to its activities. Completion of Phase Two is a key driver in our forecast for Kinross to sustain 2.5 million ounces of production through to 2022 (and beyond).

The $4.75 Merrill Lynch price objective compares to the posted consensus target price of $4.69. The shares traded at $2.95 on Friday.

Kosmos Energy

This is a solid energy exploration and production play. Kosmos Energy Ltd. (NYSE: KOS) is a conventional oil and gas E&P company focused on the Atlantic margin and on unlocking new hydrocarbon systems and growing and maturing discovered basins through follow-on exploration success, development and production.

Although many of its peers have scaled back exploration, Kosmos believes this is the best route to generating value, seeking to replicate its discovery and development of the Jubilee field in Ghana.

Merrill Lynch has a $10 price objective. The consensus target price is $9.51, and shares traded at $9.05 apiece.

Sirius XM

This stock has been on a roll this year and looks poised to go higher. Sirius XM Holdings Inc. (NASDAQ: SIRI) is the world’s largest radio company, measured by revenue, and has approximately 33.1 million subscribers.

Sirius creates and offers commercial-free music; premier sports talk and live events; comedy; news; exclusive talk and entertainment; and a wide range of Latin music, sports and talk programming. Sirius is available in vehicles from every major car company and on smartphones and other connected devices as well as online.

Sirius is also a leading provider of connected vehicles services, giving customers access to a suite of safety, security, and convenience services, including automatic crash notification, stolen vehicle recovery assistance, enhanced roadside assistance and turn-by-turn navigation.

Merrill Lynch has set its price target at $8, but that may be going higher soon. The posted consensus target is $7.02, and the stock was trading at $7.20 per share.

These are five stocks for aggressive accounts that look to get share count leverage on companies that have sizable upside potential. While not suited for all investors, these are not penny stocks with absolutely no track record or liquidity, and Merrill Lynch has research coverage on all five.