Stocks under $5, such as TeamStaff and Majesco Entertainment, have more than doubled already this year even as most small-cap stocks have been brutalized by economic weakness and global debt woes.
Small-cap stocks have been the big winners during the two-year bull market that followed one of the worst worldwide recessions. Money managers argue now is a time for investors to get defensive and move into less-risky asset classes like large-cap equities.
On the other end of the capitalizationspectrum, some small-cap stocks have seen outsized gains even as most have underperformed. The Russell 2000 index—a benchmark for small-cap stock performance—is down 7.5 percent this year, worse than the 1 percent decline on the Dow Jones Industrial Average and 4.2 percent slide on the Standard & Poor's 500 index.
During times of economic weakness, small-cap stocks usually suffer sharper declines than their large-cap counterparts. With U.S. economic growth at a miniscule 0.4 percent in the first quarter and 1 percent in the second quarter, the Russell 2000's underperformance this year is not out of the ordinary.
Still, many inexpensive stocks have generated huge returns for lucky stock pickers, even as other low-priced shares including PMI Group and Motricity plunged more than 60 percent in August alone.
The following details the best-performing stocks under $5 this year on the New York Stock Exchange, Nasdaq and NYSE Amex, ranked by total return through the first eight months of 2011.
5. Echo Therapeutics
Company Profile: Echo Therapeutics is a medical device and pharmaceutical company that is developing a non-invasive, wireless, transdermal glucose monitoring system for use in clinical settings and for people with diabetes.
Shares of Echo Therapeutics were trading around $1.50 to start the year but doubled by the end of January after the company announced it received a $3 million funding commitment from its largest shareholder, Platinum Montaur Life Sciences.
The company also announced that it has raised $2.5 million through a series of private placements of stock and warrants.
Echo CEO Patrick Mooney said in January the deals provided sufficient funds to substantially complete product development, clinical studies and manufacturing of both the company's skin permeation platform technology and its needle-free continuous glucose monitoring system.
Current Share Price: $3.70 (Aug. 30) 2011
Total Return: 131 percent
Analyst Ratings: Echo Therapeutics garners six "buy" ratings from Wall Street research firms, including JMP Securities and Stifel Nicolaus.
The average price target of $6.33 represents potential upside of 71 percent.
TheStreet Ratings rates Echo Therapeutics a "sell," calling attention to the company's "deteriorating net income, disappointing return on equity and feeble growth in its earnings per share.
Company Profile: Interphase is a telecom-equipment maker. The company provides services for LTE and WiMAX, interworking gateways, packet processing, network connectivity, and security for key applications for the communications and enterprise markets.
Interphase shares more than doubled on Feb. 11, a day after the company reported fourth-quarter financial results. The company said revenue in the quarter jumped 24 percent to $5.8 million as it swung to a quarterly profit.
The stock hit a high of $7.59 in March but has been steadily pulling back since.
Current Share Price: $4.60 (Aug. 30) 2011
Total Return: 155 percent
Analyst Ratings: There are no research firms covering Interphase currently.
TheStreet Ratings has a "sell" rating on the stock, which it has maintained since downgrading the stock from "hold" in July 2009.
The latest report says Interphase's primary weakness is "feeble growth in its earnings per share."
3. Acceler8 Technology
Company Profile: Acceler8 Technology develops materials and instrumentation for applications in medical instrumentation, basic research, drug discovery and bio-detection.
The stock surged in the absence of any headlines in January, prompting an inquiry from the NYSE for the unusual volume activity.
Acceler8 shares again spiked in February after the company said an evaluation agreement with Novartis was extended to June 30. Novartis will pay the company a monthly fee for an exclusive-rights extension.
Current Share Price: $3.11 (Aug. 30) 2011
Total Return: 214 percent
Analyst Ratings: No Wall Street firm covers Acceler8 Technology.
TheStreet Ratings has a "hold" rating on Acceler8's stock, arguing the company's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity" are counterbalanced by the company's limp profit margins.
2. Majesco Entertainment
Company Profile: Majesco Entertainment makes videogames mainly for the family-oriented, mass-market consumer.
Majesco's run this year started in January when the company announced it had shipped more than 500,000 copies of its "Zumba Fitness" videogame for the Wii, Xbox 360 and PlayStation 3. Later that month, the company announced it regained compliance with the Nasdaq's minimum bid price requirement for continued listing.
In early March, shares of Majesco climbed higher after the company posted better-than-expected fiscal first-quarter financial results, with revenue jumping to $48.5 million from $29.2 million in the same period a year earlier.
In June, Majesco upped its full-year revenue outlook as it expects to ship 17 new games this year across platforms like the Xbox Kinect, Facebook, Nintendo's 3DS and Apple's iPhone.
Current Share Price: $2.60 (Aug. 30)
2011 Total Return: 237 percent
Analyst Ratings: Majesco garners two "buy" ratings from Needham & Co. and Sidoti & Co. Majesco also receives a "neutral" rating from Wedbush. Needham analysts have a $5 price target on the stock while Wedbush has a $4 target.
TheStreet Ratings has a "hold" recommendation on Majesco Entertainment.
The research report says robust revenue growth, a largely solid financial position with reasonable debt levels and return on equity are strengths that are countered by the company's weak profit margins.
Company Profile: TeamStaff is a staffing provider specializing in health-care, logistical, information-technology and office administration personnel.
Shares of TeamStaff initially popped in May after the company was chosen as the single source for integrated medical support for the Department of Veterans Affairs' Consolidated Mail Outpatient Pharmacy program, an award that carries a total maximum value of $140 million.
The company has also been awarded other contracts, including the Navy SeaPort-e "prime" contract in July, which allows TeamStaff access to bid on $5.3 billion of services via task orders issued under the SeaPort-e program.
Current Share Price: $1.91 (Aug. 30)
2011 Total Return: 275 percent
Analyst Ratings: No Wall Street research analysts follow TeamStaff.
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