2 Treasures Under $10

11/09/2011 3:42 pm EST

Focus: STOCKS

Nancy Zambell

Editor, Wall Street's Best Investments and Wall Street's Best Dividend Stocks

One of the hot IPOs from years past now looks very attractive, and this is one of Nancy Zambell’s two favorite picks that she features in her publication Buried Treasures Under $10. She explains more in this exclusive interview with MoneyShow.com.

Nancy Zambell has some treasures for us under $10. Nancy, thanks for joining us.

You’re welcome, and I’m so glad you said treasures under $10, because when you say that, people will often say “Oh, those are penny stocks.” But they are by far not penny stocks.

These are fundamentally strong companies that have been around many times for 100 years. It’s just for one reason or another they haven’t needed Wall Street’s money, so Wall Street hasn’t pumped their shares up.

But these are companies that are certainly on the cusp of Wall Street noticing them. In some cases, they’ve started to notice them already and started pumping their shares up, so I have two that I’d like to share with you today.

Let’s get right to it.

First of all, it’s time to make the doughnuts. I like Krispy Kreme Doughnuts (KKD).

I remember when Krispy Kreme came out—it was probably almost a decade ago when they came out with their IPO—and the P/E on the company, the price-to-earnings ratio was 95, and I said you must be joking. How could a doughnut company possibly trade that high? Of course what happened is “doot” and back down again.

I’ve been watching them over the years, and their stock fell, fell, fell. They went through a major restructuring a couple of years ago, and brought in an entire new management team.

So I moseyed on down to North Carolina and visited the company. As you know, Myron, part of my shtick in doing Buried Treasures Under $10 is to go out and visit as many companies as I can, so I’ve put a lot of miles on over the years.

The first thing I noticed when I went into Krispy Kreme is they actually have doughnuts in their lobby. It was wonderful. I was in heaven. And since it was National Doughnut Day, I allowed myself to partake.

But at any rate, beyond the wonderful doughnuts they have an interesting act—and "act" is probably not quite the word for it—but in their production companies, what they call their artist’s companies, when you go into a Krispy Kreme doughnut factory you can actually watch them making the doughnuts.

This is a company who has struggled through over-expansion, now restructuring. The stock is trading at a very, very low level right now. And they’re starting out now with several different types of doughnut shops. So I think it’s a really good company to buy right now.

Have another one?

The other one, which is at the opposite end of the spectrum: a company that makes payday loans.

Now, everyone can gasp and go “Oh my God, that’s a terrible thing. Everyone is going to get taken by these high usurious interest rates." Well, it’s probably one of the most heavily regulated industries that we have…and, of course, these companies do not operate in states that only let them charge 5%, of course.

They typically charge 25% to 35%. They are very short term, but when people think of those rates, they think of an annual rate. People don’t borrow the money for 52 weeks. They borrow it for a week…so your rate actually is not that bad.

So, this is one of the largest companies, the largest publicly traded of the companies. The company is called Advance America Cash Advance Centers (AEA), and it’s also trading under $10.

It is the largest publicly traded of the payday-loan companies. It is in over 32 states. It has over 2,500 centers. So this is a company that is up and coming.

And even if the market gets better—even when the market gets better and the economy gets better—they’ll continue growing, because their customers are not poor. Their customers are middle-class customers, which is an amazing scenario, so I would definitely think that that’s a good company to purchase.

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