3 Stocks That Should Go for a Reverse Split

Well, that reverse split wasn't so painful.

Jamba (NASDAQ: JMBA  ) shares moved 14% higher last week after kicking off the week with a 1-for-5 reverse split.

Every five shares of the smoothie chain operator were replaced with a single share priced five times higher. The end result is that Jamba closed out the month of May at $2.99, or $14.95 after the reverse split kicked in after May 31's close. It moved higher in four of the first five days of post-split trading to close out its first week at $17.

Reverse splits have negative connotations, and rightfully so. For every Jamba that executes one to boost its shares into a price that swaps speculators for institutional investors, there are countless fading companies going through reverse splits to maintain their exchange listings.

For every rising company going for a reverse split -- and Jamba did hit a multiyear high before the move -- there are too many desperate companies going this route in desperation.

With Jamba's seemingly successful split, which company with a share price in the low single digits is a prime candidate for being the next successful reverse? Let's check a few out.

Alcatel-Lucent (NYSE: ALU  ) -- $1.84
Despite its tiny share price, Alcatel-Lucent did close at a 52-week high on Friday.

The global provider of products and services for the networking and communications industries may be losing money on flat revenue growth, but losses are narrowing. There's also more to the flat top-line performance than meets the eye as reasonable growth in its networks and platforms businesses is offsetting double-digit declines in its optical networking operations. Alcatel-Lucent is also taking better bets, exiting or restructuring contracts where the cost structures aren't fiscally prudent.

A shrewd move to raise more than $2 billion in new financing late last year should help it ride through upcoming debt repayment milestones until it returns to profitability as early as next year.

Sirius XM Radio (NASDAQ: SIRI  ) -- $3.46
Late last month, I made the unpopular argument that the top dog of satellite radio should follow Jamba into a reverse split, and I'm not backing down.

Sirius XM has been one of the market's biggest winners over the past four years, but there is a problem with having nearly 7 billion shares outstanding. If Sirius XM were to join Jamba in the mid-teens, we would be talking about a market cap of $100 billion. That's just not realistic given the media giant's current business model.

There are enough retail and institutional investors steering clear of stocks trading for $3-and-change that it could boost Sirius XM's profile if it did go through with a reverse.

Capstone Turbine (NASDAQ: CPST  ) -- $1.30
Things are finally starting to happen for the microturbine maker. Revenue is growing at a healthy clip, and analysts see Capstone finally turning a quarterly profit later this year.

Capstone's top line is growing as new orders continue to pile in, and a growing backlog of orders is a healthy indicator of strong growth in the coming quarters. Buyers are drawn to Capstone's turbines, which run efficiently on different types of fuel.  

The one thing standing in the way of Wall Street credibility is its share price, which has weaved in and out of a buck for most of the past four years.

It's better to go with a reverse split now -- when momentum is on its side, after it soared 59% since bottoming out last month -- than to wait until later, when it may be a matter of meeting the exchange's minimum listing requirement.

Move forward
There's more to life than low-priced stocks that may benefit from reverse splits. Some of the market's best stocks have pretty large price tags.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (5) | Recommend This Article (7)

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 June 10, 2013, at 3:12 PM, nofoolingforme wrote:

    C'mon, Rick. Why are they conducting a share buyback if they had any intention of doing a reverse split? This idea has been negated time and time again. They will continue to buyback shares until they get the count down to between 4 and 5 billion and that will be all the need to do for a while.

  • Report this Comment On June 10, 2013, at 4:17 PM, Austin77478 wrote:

    Rick, do have something else to write about? "nofoolingforme" pretty much said it all.

  • Report this Comment On June 10, 2013, at 4:43 PM, vesprito1 wrote:

    Rick, May I call you Rick or is it ( Mr. Munarriz )

    You need to go back to school and learn about

    The saying ,The difference between the Men and boys ( that's you, is the price of their toys.

    Jamba,

    The Company offers a variety of fresh blended-to-order smoothies, fresh-squeezed juices, baked goods and snacks through retail stores.

    Siri The play yields a $5.50 share price return, or 58% over Sirius XM's current $3.50 share price, once Sirius XM reaches $4.50 per share.

    TheStreet Wire

    Sirius XM Radio Inc. Stock Buy Recommendation Reiterated (SIRI)

    By TheStreet Wire 06/10/13 - 10:00 AM EDT

    Oh by the way SIRI sells ,Entertainment not

    Smoothies,Backed goods or snakes.

    Why does AAPL,And GOOGLE want to venture

    Where SIRI is King ???.

    Vesprit01

  • Report this Comment On June 10, 2013, at 6:36 PM, zukerman wrote:

    I have to wonder if any research was done by you concerning Malone's history and reverse splits? You said yourself that timing is essential when doing a reverse, now isn't that time. It is true that the share count has plagued this company ever since the Satwars. Who comes in second in satellite radio anyway? Maybe I didn't look far enough back to find a similar move by Malone, but these don't seem comparable and I have no idea how many shares they had at that time.

    Liberty Media Corp. shareholders will vote at the company’s June 8 annual meeting on a reverse stock split proposed for two of the company’s tracking stocks

    The Douglas County-based media conglomerate revealed the plan to consolidate shares in the Liberty Capital and Liberty Interactive tracking stocks in a Securities & Exchange Commission filing on Friday.

    If approved, shareholders of Liberty Capital tracking stock (NASDAQ: LCAPA, LCAPB) will own one share for every three they own now. Owners of Liberty Interactive shares (NASDAQ: LINTA, LINTB) will receive one share for every five they currently own.

    The reverse split is intended to increase the value of the shares and improve their potential for trading activity, the company said.

  • Report this Comment On June 10, 2013, at 7:24 PM, Varchild2008 wrote:

    This stock trading in the teens would be a quadruple bagger. Those expextations are insane in the short term.

    Ill be happy enough to see this strike $6 in 2 to 3 years.

    Instead of a reverse stock split, I'd like to see a quarterly dividend.

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