The Dow Jones Industrial Average made news this week when it briefly fell below 13,000. But I'll tell you a little secret Wall Street doesn't want you to know. The Dow has badly underperformed the real stock market.
Most people don't realize how bad it's been. The Dow just follows thirty mega-cap stocks and that's not where the best action has been. I'll give you a perfect example. If the Dow had merely kept pace with the S&P 600 Small-Cap Index, then the Dow would be around 23,500 today. Instead, it's more than 10,000 points lower.
Still, the Dow's closing number is reported by every newspaper and media outlet in the country. In fact, it's now reported all over the world. The problem is that investors don't know how poorly it's done. I get frustrated by the media's lack of interest in anything that's not a $100 per share stock.
At Emerging Growth, I have no such rules. For nearly 30 years, my team and I have pledged to look at every sector, every industry and every price range to find the very best stocks to own. I'm very proud of our track record. Since the beginning of 1985, the Emerging Growth Buy List is up over 5,500%. If the Dow had done that well, then it would be closing in on 70,000 today.
Some of our best investments have been in overlooked low-priced stocks. Three years ago, I recommended shares of Hansen Natural (HANS), the maker of the Monster Energy drink. The stock was going for just $20 a share. Let's just say that it wasn't getting a lot of media coverage back then. We sold it a few months ago for a gain of over 1,000%. Now that's exactly what Emerging Growth is all about!
This week, I want to focus on some of my favorite low-priced stocks. I know many new investors don't like putting down $10,000 or $15,000 for only 100 shares of stock. I don't blame you. The good news is that lower-priced stocks tend to come from some of the most innovative smaller companies. Larger organizations are often overly bureaucratic and slow to change (just look at Citigroup).
One low-priced stock I recommend right now in Emerging Growth is Simulations Plus (SLP). This is a very small outfit based in Lancaster, CA that makes computer programs that simulate absorption and pharmacokinetics for orally dosed drugs. Their programs are godsends for many medical professionals.
Yesterday, shares of SLP closed at just $4.62. Don't let this low price fool you. The stock is up 60% for the year. Best of all, the company is practically ignored by the major Wall Street brokerages. Some people think that's a bad thing. Not me--I love finding great stocks before the crowd. For the most recent fiscal year, revenues at SLP jumped 50% and the company is financially sound. There's zero debt and over $4 million cash. I rate Simulations Plus a strong buy up to $8 a share. But I should caution you that I also rate it as an aggressive stock which means that it's highly volatile. If you can stand the daily zigs and zags, then SLP is a great stock to own.
Another low-priced Emerging Growth favorite is Darling International (DAR). This company loves fat! By that, I mean Darling's business is to go around to restaurants, grocery stores and butchers to collect cooking grease, animal fat and bones. Gross, I know, but this waste is important because it also serves as biofuel. Darling is actually working to help the environment. Currently, most biofuel comes from ethanol, but more and more is coming from animal fats.
Darling's business has been red hot lately. The company recently announced that its quarterly earnings jumped from two cents a share to 15 cents a share. Wall Street was expecting just 12 cents a share. I'm expecting more great things for Darling. Yesterday, the shares closed at $9.83. I currently rate DAR a conservative buy up to $10 a share.
My last low-price recommendation is Methode Electronics (MEI), also recommended in my Emerging Growth newsletter. The company's shares currently go for about $12. Methode makes devices that use electronic and optical technologies to control and convey signals through sensors, interconnections and controls. Last quarter's results stunned Wall Street. On average, analysts were looking for a profit of 16 cents per share. Method earned 22 cents a share, thus providing us with a 37.5% earnings surprise! The next earnings report is due on December 5 and I'm expecting another earnings surprise. I rate Methode as a moderately aggressive buy up to $14 a share.
