Three Stocks Under $5 With Triple-Digit Upside

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With the Federal Reserve standing pat this week, the S&P 500 index has reached another all-time high.

Yet this bull market is proving to be even more fertile for investors in small-cap and micro-cap stocks. Both the iShares Russell Microcap Index and the Russell 2000 Small Cap Index are outperforming the S&P 500 by a solid margin over the past two years.

With no end in sight to the bull market, there’s no reason to stop focusing on these small companies at this juncture. If the economy can manage to build a head of steam in 2014 and 2015, then these small stocks should see even deeper investor interest.

Here are three stocks that all trade below $5 and sport market values below $500 million — and are poised for solid upside if this rally continues.

1. Lionbridge Technologies, Inc. (NASDAQ:LIOX)
I took note of heavy insider buying at this language translation services firm back in July, and though shares are up nearly 10% since then, the company’s outlook has brightened markedly.On the second-quarter conference call, management delivered its most upbeat discussion of business trends in several years, noting that Lionbridge is seeing an expansion in its relationship with Microsoft Corporation (NASDAQ:MSFT), the return of several other large tech clients that had dropped off in the past few years, and a rising order book with manufacturing and life sciences clients.The charm of this business model is the clear need it fills. Companies are looking to make sure their staffs in foreign offices are able to correctly translate documents, provide accurate sales brochures in local languages, and conduct videoconferences in multiple languages. As an example, Intuit Inc. (NASDAQ:INTU) is now using Lionbridge’s GeoFluent simultaneous translation software at its global help centers, as are a dozen other clients.

Much of this new business activity has yet to bolster the income statement. Indeed, sales are likely to rise at less than 10% (on a year-over-year basis) in coming quarters, but the seeds appear to be in place for more robust growth as the global economy mends. I encourage you to read the management discussion to gain a deeper sense of Lionbridge’s growth prospects.

2. Novavax, Inc. (NASDAQ:NVAX)
At some point early in your life, you probably picked up a case of RSV (respiratory syncytial virus). Most babies do, and then go on to make a full recovery. But for babies who have compromised immune systems, especially those who are born premature, RSV can be lethal. Worldwide, roughly 3 million kids and at-risk elderly people are hospitalized each year, leading to an estimated 66,000 deaths.Doctors will be convening in Portugal next month to discuss the latest approaches to treating RSV (there is currently no vaccine). While several biotech firms are working on the problem, “Novavax leads the field,” according to analysts at Lazard. The company is expected to discuss its current clinical trials at the event, which may explain why this stock has already been perking up lately.

The RSV meetings are just a near-term catalyst for this stock. Long term, Novavax is pursuing a vaccine for the herpes virus, bird flu and even the seasonal flu virus.

Those potential market opportunities explain why Novavax’s market value has already swelled to nearly $500 million. Yet analysts at Lazard see more than 200% upside to their $11 target price. They view the company’s drug development and approval as a “when” and not “if” situation.

Management will be holding a detailed discussion of the drug pipeline next week, making this a good time to brush up on this under-the-radar biotech investment opportunity.

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