According to Dorfman, stocks trading in the single-digit values are considered risky, racy and volatile, but at the same time, they offer an outsized return if discovered by institutional investors.
Here are his top five picks:
1. Pier 1 Imports Inc PIR
Pier 1 is a seller of home decor and furniture and should benefit over the next two years given the U.S. dollar's strength, which favors importers and an increase in household formations.
2. Hampton Roads Bankshares, Inc. HMPR
Hampton Roads is a regional bank based in Virginia; its stock is trading for less than its book value and at a multiple of just three times earnings.
3. New Home Company Inc NWHM
New Home Company is a California-based home builder whose stock price is trading at 0.4 times revenue, 0.9 times book value and 10 times earnings. However, the company has taken on debt as of late to finance its expansion.
4. Noble Corporation Ordinary Shares (UK) NE
Noble Corporation is a UK-based offshore driller; its stock is trading way under book value.
5. Hailiang Education Group Inc (ADR) HLG
Hailiang is a China-based education company that boasts a debt-free balance sheet and a market value of just $206 million.
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