4 Stocks That Need a Reverse Split, Now

XOMA (Nasdaq: XOMAD  ) shares popped 15-fold yesterday, but investors aren't necessarily any richer.

The biotech with a knack for novel antibody therapeutics simply executed a 1-for-15 reverse split, swapping 15 old shares for a single new share at a price point 15 times higher. The share count and the share price have changed, but the underlying value hasn't.

Mr. Market typically scorns reverse splits as a desperate measure, intended either to gain exchange-listing compliance or shake out the fly-by-night speculators who feverishly trade in and out of penny stocks. In Xoma's case, the company's drug pipeline consists mostly of long shots, and even though it has cranked out the occasional quarterly profit, deficits are far more common over the past few years. Xoma's shares also took a 14% hit after executing its reverse yesterday -- not surprising for companies where a reverse split simply delays the inevitable.

However, reverse splits are no longer solely the feeding grounds for fading companies at risk of delisting. E*TRADE (Nasdaq: ETFC  ) pulled off a 1-for-10 reverse split three months ago, even though the discount broker never broke the buck. A month earlier, Citigroup (NYSE: C  ) asked shareholders at its annual meeting to give it another year to decide on declaring a reverse split. Investors granted the extension, even though Citigroup has been respectably trading in the mid-single digits for several months.

With these big names making reverse splits seem more respectable in Wall Street's eyes, I wouldn't be surprised to see other prominent companies follow suit. Here are four possibilities I'll be watching for in the coming months.

YRC Worldwide (Nasdaq: YRCW  ) - $0.27
Trucking giant YRC isn't as small as its share price suggests. This Fortune 500 company raised a good chunk of change earlier this week by selling its global logistics business.  

Despite bankruptcy-filing fears among investors, YRC is doing its part to keep on truckin'. Its flagship business has shown sequential improvement as YRC posts narrower deficits.

This stock traded in the double digits two years ago, but YRC may need a reverse split to maintain listing compliance, assuming it doesn't plan on filing for Chapter 11 reorganization.

Sirius XM Radio (Nasdaq: SIRI  ) - $1.00
No one's laughing at the satellite-radio provider these days. Sirius XM has delivered four consecutive breakeven quarters, and it's upped its guidance several times this year.

Even though its share price weaves in and out of the $1 mark, the company seems unlikely to go under that threshold long enough to trigger an exchange delisting.

However, Sirius XM may still want to consider a reverse split, because it just has too many shares outstanding. With 6.4 billion -- yes, billion -- shares outstanding as of its latest quarter, the premium radio titan is commanding an enterprise value approaching $10 billion. If it wants to trade at a high enough price point to swap out speculators for institutional investors, a reverse split may do the trick. Otherwise, it'd likely take several years of blowout quarters to even approach the $5 mark.

Evergreen Solar (Nasdaq: ESLR  ) - $0.65
The skies may not seem all that bright at Evergreen these days. The solar energy specialist has been consistently trading below the buck since May. The low price may add some speculative sizzle to a sector that's never short on zing to begin with, but listing requirements may force Evergreen's hand.

Unlike many of the larger solar players, Evergreen isn't presently profitable. However, at least one analyst thinks that the maker of String Ribbon solar power products will turn profitable by next year.

Vonage (NYSE: VG  ) - $2.11
The web-based phone service is back. After a rocky IPO and a gradual descent to pocket change, Vonage has rattled off several profitable quarters in a row.

It's in the same camp as Sirius XM on this list. It doesn't need to pull a reverse to gain any kind of exchange compliance, but it may want to declare one -- just so it can whittle down its share count and join its telco and telephony peers at higher price points.

Skype's IPO may draw investing interest in the web-based communications space, and Vonage may as well dress up before the party arrives. 

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 19, 2010, at 1:28 PM, baldheadeddork wrote:

    Let see, got my nomex gloves, hood, jacket...okay, now I'm ready:

    Do you think institutional investors are really interested in SIRI? Seriously?

  • Report this Comment On August 19, 2010, at 2:26 PM, southernbeachguy wrote:

    R/S are only good for Shorts, after having 3 stocks do a R/S and promply go down 40%, I decided never to hold thru another split. Sure enough I sold GETA & ANX and they both split and went down. I have had Siri for 3 years and am will to hold for 3 more years, but if it splits I'm selling. As I said, stocks are no longer investments, they are for crooked shorts.

  • Report this Comment On August 19, 2010, at 6:40 PM, NotCensored wrote:

    The sad fact is, @ southernbeachguy, that the institutions *want* you to sell. Which is one of the reasons why there are several "writers" & "analysts" so quick to suggest that retail investors are stupid for not wanting a reverse split.

    Face it, these guys aren't working to make money for the little guy.

    Here's the thing, the entire financial industry is a perceptual scam. The trick is to listen closely to the words being spoken and the read the fine fine print on the bill of goods being sold.

  • Report this Comment On August 19, 2010, at 6:58 PM, NASDAQCZAR wrote:

    XOMA TARGET RAISED TO $50 BLOCKBUSTER DRUG XOMA 052 sorry fools are crackpots gardners are wrong 99% of the time top pick 3DFX imploded TFDX bankrupt sorry nvidia cleaned their clocks zero credibility fool.com

    http://seekingalpha.com/instablog/554356-nasdaqczar/82659-xo...

  • Report this Comment On August 29, 2010, at 1:19 AM, NASDAQCZAR wrote:

    i doubled my XOMA position last week and will add more this week i think xoma got oversold and will rebound sharply up to $10-15 range on small float and a big short squeeze and xoma heads to $50 after a big corporate partnership, Gevokizumab xoma's blockbuster diabetes drug is a multi-billion dollar drug eom

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