After a two-year bull market that followed the 2008 financial crisis, small-caps have been brutalized. The Russell 2000 index, a measure of share performance for smaller companies, is down more than 20 percent since the end of April.
Investors have become more risk-averse and have sought safety in dividend-paying, large-cap stocks and U.S. Treasury bonds.
The flight to safety has been fierce, especially as the debt crisis in Europe worsens.
Among equities, the Russell 2000 index has dropped 14 percent this year, while the Standard & Poor's 500 index, which holds the companies with the largest market values, is down half that.
At the same time, the yield on the 10-year U.S. Treasury has dwindled from 3.3 percent to less than 2 percent.
Gold has also been a hideout for investors; the precious metal jumped from about $1,400 in price at the end of 2010 to above $1,900 an ounce earlier this month.
Still, many inexpensive stocks have generated huge returns for lucky stock pickers.
In September, as the S&P 500 has wilted 4 percent on worries Greece will default and the entire euro zone will crumble, stocks like transportation logistics company Clark Holdings and medical-device maker Mela Sciences have more than doubled.
Given the volatility in the equity market, investors must be careful in searching out small-cap stocks worth the risk, as fortunes can be lost with one bad trade.
Trucking giant YRC Worldwide saw its shares plunge by 92 percent in September alone, while Virginia-based Commonwealth Bankshares dropped more than 60 percent this month.
Some small-cap winners have doubled and, in some cases, quadrupled this year. The following are the best performing stocks trading under $5 this year on the New York Stock Exchange, Nasdaq and NYSE Amex, ranked by total return through the first three quarters of 2011.
5. Hansen Medical
Company Profile: Hansen Medical develops medical robotics designed for accurate positioning, manipulation and control of catheters and catheter-based technologies.
Shares of Hansen Medical jumped to a 52-week high of $5.28 in July, but the rally began in early February after Philips Electronics purchased the rights to develop and market Hansen Medical's Fiber Optic Shape Sensing and Localization, or FOSSL, technology for an upfront payment of $29 million. Hansen Medical is also eligible for $78 million in future payments.
Current Share Price: $3.49 (Sept. 28) 2011 Total Return: 129.5 percent.
Analyst Ratings: JPMorgan and Lazard Capital analysts rate Hansen Medical a "neutral," while Piper Jaffray and Ladenburg Thalmann analysts say the stock is a "buy." The average price target of $4.75 represents potential upside of 36 percent.
TheStreet Ratings rates Hansen Medical a "sell," calling special attention to the company's weak operating cash flow.
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: $4.68 (Sept. 28) 2011 Total Return: 162.2 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. Majesco Entertainment
Company Profile: Majesco Entertainment makes video games 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 video game 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: $2.21 (Sept. 28) 2011 Total Return: 187 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.
2. 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: $3.05 (Sept. 28) 2011 Total Return: 203 percent.
Analyst Ratings: No Wall Street firm covers Acceler8 Technology.
TheStreet Ratings has a "hold" rating on Acceler8's stock, arguing that 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 poor 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: $1.69 (Sept. 28) 2011 Total Return: 214.4 percent.
Analyst Ratings: No Wall Street research analysts follow TeamStaff. TheStreet Ratings has a "sell" rating on TeamStaff, noting the company's "disappointing return on equity, weak operating cash flow and poor profit margins."
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