Don't let it get away!
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It's now been nine months since I wrote the original "5 Stocks on Wall Street's Dollar Menu" article. I was surprised at the time to find so many recognized stocks trading for less than $1 a share.
Even more household names would join the list in the months to come, as familiar companies in all industries buckled under the market's malaise.
A lot has changed since my last "dollar-menu" column in early March. The market's monstrous rally has been particularly kind to the downtrodden companies. Four of the five stocks on that March list now trade for well over a buck. The lone exception is Sirius XM Radio (Nasdaq: SIRI ) , but it has certainly been no slouch, having soared by 169% since the March column.
A healthy market has certainly cleared out many dollar-menu specials, but the cupboard is not bare.
In singling out candidates, I look for two things:
- The stock should be a stateside company. There are too many foreign American depositary receipts that trade for pocket change. That's not their fault -- it's a currency-exchange thing -- but I still omit those stocks.
- I also limit myself to stocks with a market cap of no less than $100 million, because the names on this list are speculative enough as it is. I don't want to dig my hand too deep into the penny-stock jar.
That said, let's dive into my first dollar menu in three months.
1. XOMA (Nasdaq: XOMA ) , $0.82
It's hard to call XOMA an upstart: The company went public in the 1980s! However, it's still swinging away, always aiming for the fences.
Its best hope to round the bases is XOMA 052, a potential blockbuster on the diabetes front. The rub, of course, is that the drug is still in the first phase of clinical trials. It will be years before the drug has a chance to hit the market, and the odds are long for most treatments in the first phase to make it that far.
Favorable studies along the way would certainly help the stock, but like many biotech stocks, this is a lottery ticket for patient investors. This one is priced even cheaper than a scratch-off.
2. Colonial BancGroup (NYSE: CNB ) , $0.67
Shares of the Alabama-based bank took an 18% tumble yesterday, as the stock was officially booted from the S&P Midcap 400. We're not talking about the widely mimicked S&P 500 here, and the announcement came a week ago, so this is old news. But when you're trading for pocket change, having even a few index-tracking institutions unloading their positions will be enough to shake up your stock.
After dozens of bank failures this year, there is always a chance that Colonial Bank may join the industry's mass grave. Federal regulators hit the bank with a cease-and-desist order this month, a move that put a pinch on a company that needs to shore up its capital levels at the worst possible time.
As a regional bank, Colonial doesn't fall under any "too big to fail" nets, so this one may be as speculative as they come. Analysts don't see a return to profitability this year or next. But bulls will argue that a company still has a shot until it officially fails, and they're right. We're just talking about a huge wall of worry for Colonial to scale at this point.
3. Blockbuster (NYSE: BBI ) , $0.77
Movie rentals have been one of the few recessionary winners, as consumers angle for the affordable pleasures of a night in with a rented DVD.
Blockbuster isn't afraid to dream big. It's entering the video game rentals-by-mail market this month. It's also investing in kiosks that deliver movies through portable storage devices. The company has been profitable in each of the past two quarters, too.
If this news sounds good so far, then you have to wonder why Blockbuster is trading for less than what its biggest real-world retail threat -- Coinstar's (Nasdaq: CSTR ) Redbox -- charges for an overnight rental. Well, Wall Street isn't sure that the chain's debt-saddled balance sheet will give it the flexibility to see its dreams become reality. The Street also sees red ink on the bottom line during the second and third quarters.
Blockbuster should be able to appease creditors if it's able to surpass near-term performance expectations. Early success on its new forays would also be an encouraging sight.
4. Capstone Turbine (Nasdaq: CPST ) , $0.85
Eco-friendly investors are cheering for Capstone. The company makes low-emission microturbine systems at a time when fighting pollution is as popular as it has ever been.
Unfortunately for Capstone, thinking green isn't enough to get you out of the red. The company posted a wider net loss last week than it did during the same quarter a year ago.
Capstone also has more things to worry about than just a deficit on the bottom line. The company is selling its microturbines for less than it costs to make them. In its fiscal year that ended in March, the company scored $43.9 million in revenue, but that figure was more than offset by $49.3 million in costs of goods sold.
Negative gross margins aren't pretty, and they make the 120% surge in Capstone's order backlog bittersweet. However, as green technologies get cheaper to make -- and the incentives get larger -- you have to like Capstone's chances.
5. Finisar (Nasdaq: FNSR ) , $0.59
This stock has all of the makings of a tech darling. It's a major player in fiber-optic subsystems and network test systems at a time when high-speed multimedia connectivity is all the rage. Finisar is also backed by a healthy rating in Motley Fool CAPS, with members of our Fool community rating it four out of five stars.
Revenue fell by 4% in its latest quarter from year-ago levels, but most tech stocks have felt that pinch. Finisar almost broke even on a non-GAAP basis, and it is profitable on that basis over the past year. Its balance sheet could be better, but it's in surprisingly good shape on the debt front, beyond some hefty convertible notes.
Finisar isn't perfect, but then again, you can never expect perfection from a dollar menu.
Here are some other ways to buck the buck: