Cheap Stocks

Malcolm Berko
Tue, 05 Mar 2019 21:00:00 -0800
Lifestyle

Dear Mr. Berko: I'd like to speculate with about $30,000 and buy six or seven stocks selling for less than $10. Could you recommend some cheap issues that have a chance of doubling in price over the next few years? I won't blame you if they crash. — KM, Wilmington, N.C.

Dear KM: Here are seven names that were found in Bernie Madoff's back pocket when he was arraigned. If these issues crash, blame Bernie, not me.
Updated: Wed Mar 06, 2019

Dear Mr. Berko: I'd like to speculate with about $30,000 and buy six or seven stocks selling for less than $10. Could you recommend some cheap issues that have a chance of doubling in price over the next few years? I won't blame you if they crash. — KM, Wilmington, N.C.

Dear KM: Here are seven names that were found in Bernie Madoff's back pocket when he was arraigned. If these issues crash, blame Bernie, not me.

Lloyds Banking Group (LYG-$3.25) traded at $46 a share prior to the Great Recession and is one of the most revered banks in the United Kingdom. Its brands include Bank of Scotland, Scottish Widows, Halifax, Colleys and Lex Autolease. Morningstar has given LYG a four-star rating. LYG earns 30 cents a share, pays 16 cents and yields 5.5 percent. Madoff thinks LYG could triple in three years.

Snap (SNAP-$9.87) has received a "strong buy" rating from Zacks and six other investment services. SNAP is a social media company that enables users to communicate via short videos and images. Revenues for 2019 are expected to come in at $1.6 billion, up 40 percent from 2018, and earnings are getting closer to a profit as ad revenue continues to grow. The TTM loss of $1.10 a share could impressively improve for 2019, and Madoff thinks SNAP could trade at $12-$15 by 2020.

General Electric (GE-$9.82) is a shadow of its former self, operating segments related to power, renewable energy, oil and gas, aviation, health care, transportation, energy connections and lighting, and capital. But there's still a lot of oomph left, with potential 2019 revenues of $115 billion and potential profit of 84 cents a share. Seven of the 17 analysts following GE have "buy" recommendations, including J.P. Morgan, Barclays and UBS. The 4-cent dividend is meaningless and nearly the cost of buying 1,000 shares. Madoff doesn't like GE, but David Friehling, his accountant, thinks it will be a $30 stock by 2021.

New Age Beverages (NBEV-$5.44) is a $51 million-revenue company that markets, develops and sells all sorts of alternative beverages, such as kombucha, energy drinks, functional medical beverages, Xing tea, Marley tea, Aspen Pure probiotic water and other "stuff." NBEV has a "strong buy" rating, and Wall Street suggests that 2019 revenues should come in at $69 million and produce a small loss of 2 cents a share. Madoff and Friehling both like NBEV and figure it may be a buyout target in the next couple of years by a larger competitor. NBEV reached a high in 2018 of $8.50, and the consensus is $14 a share.

Telefonaktiebolaget LM Ericsson (ERIC-$9.30), better known as just Ericsson, makes its home in Sweden and does everything that Verizon and AT&T do. This $23.8 billion Swedish meatball lost 72 cents a share last year but paid a 13-cent dividend from cash flow. This year, 10 analysts following ERIC reckon the company will earn 44 cents a share with zero increase in revenues. During the glory days in the 2000s, ERIC traded at over $125 a share. Madoff's lawyer Ira Sorkin believes that his client picked a winner with ERIC, and others close to Bernie have a $55 target by 2021.

Zynga (ZNGA-$5.16) designs some of the world's most popular social games, played by 87 million active customers each month on average. ZNGA came public at $10 in late 2011 and then later traded solidly at the $1.50-$2.25 level for several years. The company has no debt, and a recent addition plus operating improvements appear to have put ZNGA on the road to profitability. As the average American continues to dumb down, social games will become more popular, and Madoff believes that ZNGA's revenues, which are increasing by about 8 percent annually, could triple the stock price in the coming 18 months.

Owens & Minor (OMI-$5.26) last year distributed $9.8 billion worth of medical supplies to over 4,000 clients around the world. After many consecutive lackluster years and a lousy 2018, OMI crashed from the high $10s to $5.85. Management is back on track, but there isn't a brokerage on the Street that's published a "buy" recommendation. That's a good reason to own OMI. Bernie thinks it'll sell in the low $20s.