It goes without saying that a low absolute stock price has nothing to do with value obtained. A $100 share stock can easily be a better bargain than a $2 share stock; a $2 stock can go to zero, resulting in an absolute loss. So price alone in no way dictates or determines value.

IN PICTURES: Eight Ways To Survive A Market Downturn

An Interesting Thing About Price
However, when one can locate a seemingly quality business with a tarnished stock price, an additional opportunity exists that aids the share price. Many large institutional investment funds, the players who really move markets, often have specific mandates prohibiting them from engaging in certain investment activity. Things like shorting stocks, minimum market caps, and other restrictions are in place to protect the millions of ordinary folks invested. Another popular restriction is the prohibition of buying stocks trading at under $10 a share.

Foolish or not, many funds must avoid stocks trading under $10, despite any attractive upside. Obviously this can create opportunity for those investors who can buy good businesses trading under $10 in hopes that once they do hit this "milestone" number, they will attract all the institutional money that can invest.

A Few Ideas
Cemex (NYSE:CX) is one of the largest cement and aggregate companies in the world. The company has been around for 100 years and has operations all over the world. Suffice to say, the combination of a global recession along with a credit crisis hurt Cemex which has over $16 billion in debt. Today shares are just below $10 against book value of over $17 a share. (For more, check out Digging Into Book Value.)

Mueller Water Products (NYSE:MWA) is a provider of water infrastructure products. Its products, such as fire hydrants, valves, pipe fittings, and water meters, are specified for use in 99 out 100 top U.S. major cities. Nearly 75% of 2009's $1.4 billion in sales comes from products with #1 or #2 market positions. Shares trade for $4.70, or a market cap of $740 million. The company's debt has been amended and a continued economic recovery should resume the company to profitability.

Eagle Bulk Shipping (Nasdaq:EGLE) is a dry-bulk shipping company that has just experienced a tsunami-like environment. Shipping rates have plummeted and excess ship supply has failed to propel the industry during the 2009 upturn. Eagle, along with names like DryShips (Nasdaq:DRYS) and Excel Maritime (NYSE: EXM) had placed major orders back in 2007 that had to be adjusted to deal with the new environment. As a result, Eagle, which has used its cash flows to pay a healthy distribution, was forced to cut it. Yet the company policy of chartering out its ships on multi-year contracts gives along with a focus on a fleet that carries a bigger variety of commodities is a plus. The $5.60 stock price is half of book value and well below the $25 price tag a couple of years back. (For more, see Finding Profit In Troubled Stocks.)

No Sure Thing
For good reasons, these companies share prices have fallen on hard times. Yet they have managed to get out of the worst economic period in over 70 years and have very interesting scenarios that can create value if they play out.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    The Biggest Risks of Investing in Netflix Stock

    Examine the current state of Netflix Inc., and learn about three of the major fundamental risks that the company is currently facing.
  2. Bonds & Fixed Income

    High Yield Bond Investing 101

    Taking on high-yield bond investments requires a thorough investigation. Here are looking the fundamentals.
  3. Stock Analysis

    What Seagate Gains by Acquiring Dot Hill Systems

    Examine the Seagate acquisition of Dot Hill Systems, and learn what Seagate is looking to gain by acquiring Dot Hill's software technology.
  4. Retirement

    How Robo-Advisors Can Help You and Your Portfolio

    Robo-advisors can add a layer of affordable help and insight to most people's portfolio management efforts, especially as the market continues to mature.
  5. Professionals

    Top Stocks to Short, Go Long On to Beat the Market

    A long/short portfolio can help weather a variety of market scenarios. Here's how to put one together.
  6. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  7. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  8. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  9. Professionals

    How to Sell Mutual Funds to Your Clients

    Learn about the various talking points you should cover when discussing mutual funds with clients and how explaining their benefits can help you close the sale.
  10. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  3. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  4. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  5. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>
  6. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!