Stocks that trade under $5 per share can be alluring to the individual investor. After all, the lower the stock price, the more shares an investor is able to pick up. And even small moves in low priced stocks can mean big percentage gains.

But stocks that trade so low often come with challenges. For one, gaining recognition can be tough, as some brokers - who view these stocks as too small, with potentially big risk - are reluctant to promote them. In addition, institutional shareholders may be unwilling to hop aboard stocks under the $5 level. (To learn more about stock prices and what they mean, read Don't Let Stock Prices Fool You.)

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Some stocks trading at bargain basement prices have the potential to ultimately fare well. However, many factors must align to allow this to happen.

5 One-Time High Flyers Now Trading Under $5

Company Market Capitalization Share Price
Boyd Gaming

General Motors
Data as of market close
February 17, 2009

Potential For Blockbuster Gains

Shares of Blockbuster have seen better days, as evidenced by the stock's precipitous drop over the last half decade and its current trading price. However, chances are good that the stock price eventually will pop, based on Blockbuster's strengths. With more than 7,500 locations worldwide, the movie rental company has a large physical presence. Furthermore, the presence of brick-and-mortar locations appeals to customers who prefer to shop in-store, rather than online. And the ability to
interact with live customer service representatives appeals to many.

However, Blockbuster caters to the more web savvy movie viewer, too. Per a recent present release, "Today Blockbuster Total Access is the only service that offers online DVD rentals from a library of more than 90,000 via free shipping, plus the convenience of free in-store exchanges at thousands of participating Blockbuster store locations nationwide." In short, its online service, mixed with the convenience of free in-store exchanges, allows Blockbuster to remain competitive against arch rival Netflix (Nasdaq:NFLX), which is known only for its online footprint.

Although it has not borne tangible fruit yet, Yahoo! Finance reported that Icahn Capital Management owned more than 10.5 million shares of Blockbuster as of September 30, 2008. Because Carl Icahn sits on the company's board, many speculate he will pull something out from under his sleeve to enhance shareholder value. Incidentally, Icahn is hip deep in Yahoo! (Nasdaq:YHOO) shares, too - a company that also could be seen as a potential turnaround story. (To learn more about Carl Icahn and what he can do for shareholder value, be sure to read Can You Invest Like Carl Icahn? and the Carl Icahn section of our Greatest Investors Tutorial.)

Although its stock trades at little more than a dollar, Blockbuster is expected to earn 32 cents per share in 2009, according to Yahoo! Finance. If the company achieves its earnings projection, its shares could see some upside.

Bottom Line
Investors may be attracted to stocks that trade under $5 per share. However, it is important to consider the special challenges they present before investing.

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