While experienced investors will understand that the price of a stock has nothing to do with its value, people who are new to investing sometimes mistakenly believe there is some automatic correlation between a stock which sells for a low monetary unit (for example $1) and the concept of 'cheap'. Nothing could be further from the truth.
There are also investors who shy away from stocks that sell for less than $1, considering them to be 'penny dreadfuls'. Thereby tainting many good companies with the 'dreadful' brush. Here are four companies selling for less than $1 that could be worthwhile additions to investors' watch lists.
1) Mayne Pharma (ASX: MYX) has expanded its business significantly in the past 12 months since acquiring the USA-based Metrics business. At the company's recent AGM the chairman stated that financial year (FY) 2014 would see product launches contribute strongly to earnings.
2) SFG Australia (ASX: SFW) is a firm which provides wealth management and financial advice services to clients. SFG reported 14% growth in underlying earnings in FY 2013. Given the buoyant stock market over the first-half to December, the outlook for financial services for the remainder of the financial year appears sound. Shareholders also receive a dividend yield of roughly 3.7%.
3) Homeloans (ASX: HOM) specialises in mortgage origination, securitisation and management of home loans. In April 2013 shareholders saw Macquarie Group (ASX: MQG) take a near 20% stake in the company. Given the strong housing market, Macquarie on the share register and a 7.3% dividend yield, Homeloans' future looks bright.
4) iCar Asia (ASX: ICQ) may not have the market share or profitability of Carsales.com (ASX: CRZ), but it does seem to be trying to replicate a similar business model in the Malaysia, Indonesia and Thailand markets. The presence of Carsales.com on the share register with a circa 20% stake adds to the appeal of this stock.
Foolish takeaway
While gut feeling is an important attribute that many investors develop, not being put off by 'headline' issues is also important. Those headlines can come in the form of negative investor sentiment, a short-term problem facing a company, or a low share price. Rather, focusing on the underlying long-term business potential of a stock is the key to long-term investing success.
