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.)

IN PICTURES: Learn To Invest In 10 Steps

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.

Related Articles
  1. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!