Because of uncertainty in the markets caused by the terrorist attacks, Nasdaq says it will temporarily lift the requirement that a stock trade above $1 to remain listed on the exchange. This move affects about 15% of all Nasdaq stocks, and seven in the Nasdaq 100. Whether delisted or not, penny stocks are still best avoided by most investors.

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By Rex Moore (TMF Orangeblood)
September 28, 2001

The Nasdaq Stock Market says it will suspend its listing rules pertaining to minimum bid and public float requirements for the rest of the year. The exchange says it's taking these steps in order to "provide greater stability to the marketplace during these times of economic uncertainty" following the September 11 terrorist attacks. The temporarily reprieve for several companies shares, however, should not be mistaken for a clean bill of health.

Companies were previously required to maintain a share price above one dollar and a varying minimum public float, which is simply the number of shares available to the general public. If a company fell below either of these levels for 30 business days, it was given 90 days to meet the requirements again or face being delisted from the exchange. (Delisted companies can still trade on the bulletin boards or "Pink Sheets.")

A look at the Nasdaq 100, a subset of the roughly 4,300 companies currently listed on the exchange, shows how dire the situation has become. According to its website, "The Nasdaq-100 Index reflects Nasdaq's largest companies across major industry groups."

Among the Nasdaq's largest companies, then, are 19 with stock prices below $5, and seven of those are currently under $1. A chart of those seven -- At Home (Nasdaq: ATHM), Exodus Communications (Nasdaq: EXDS), McLeodUSA (Nasdaq: MCLD), Metromedia Fiber Network (Nasdaq: MFNX), XO Communications (Nasdaq: XOXO), BroadVision (Nasdaq: BVSN), and CMGI (Nasdaq: CMGI) -- shows the utter devastation of their value over the past year.

About 15% of all Nasdaq companies, or roughly 669, are currently under $1, according to Reuters. Though not a fair comparison, it is instructive to note that of the 30 stocks making up the Dow Jones Industrial Average, Hewlett-Packard (NYSE: HWP) carries the lowest price tag at $16.09 as of yesterday's close. (For more information on the various indices, visit our Index Center.)

A couple of years ago it was a rare sight to see former multi-million dollar companies facing the prospect of being delisted, but it has now become commonplace. Just because former high-flyers -- or any others on the Nasdaq -- may be given a temporary reprieve from the exchange's requirements, however, doesn't alleviate the business-focused problems facing many of them: lack of funding, weak or nonexistent customers, constricting debt loads, and so on. 

Given that, writing off penny stocks as potential investments is likely the most prudent choice of action for most investors.

Rex Moore collects pennies, but not penny stocks. You can view his holdings, and the Fool's disclosure policy, online anytime.

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