Investors may periodically want to take a look at stocks selling cheaply, as low as $5 or less. But are they bargains or bummers? It all depends on how they got their $5 price tag. Here we look at a small batch of stocks - some are worth considering, others should be thrown right out. (For background reading, see Cheap Stocks Or Value Traps?)

Citigroup, Again
Most of what can be said about Citigroup (NYSE:C) has already been said, from its gargantuan write-downs to its plummeting stock price and fortunes in the last couple of years. Recently, the focus is on the repayment of TARP money by the bank via its $20 billion stock offering. Meanwhile, its credit card business was cited as a potential global growth vehicle, and even Citi's most ardent backers write more hopefully than convincingly of a turnaround for the bank's overall business.

Hercules To Unchain?
Hercules Offshore Ltd. (Nasdaq:HERO), an offshore oil and gas rig supplier for exploration, has had a tough year, and has seen its stock price crushed from the $40 range to its current $5 status. It has historically been a solid revenue producer, however, and could rebound in a major way if there is any upsurge in drilling demand. This is a stock, despite having been punished, with a fundamentally sound business behind it. As a result, it could see a substantial improvement in its business.

Air Apparent?
The airlines was a depressed industry before it was even fashionable in the general economy. But the industry may be pulling out of its malaise - finally! Fuel prices are down, volume is expected to be up, and the narrowing of losses by such carriers as US Airways (NYSE:LCC) has given investors hope, and injected some life into the stocks. Even so, U.S. Airways, like most of the carriers, is a highly speculative play in an industry that continues to be fragile. (Learn more about airlines in our Airline Industry Handbook.)

Phone Madness
Phones of every kind, wireless devices that practically do anything, are everywhere; we depend on them. Yet Sprint Nextel (NYSE:S) is certainly unpopular with investors if its languishing stock price is any indication. Sprint was cited as having a chance to make market inroads if it comes up with something innovative; on the other hand, some observers feel the company is ticketed for eventual oblivion if it doesn't.

The Wendy's/Arby's Sandwich
Wendy's/Arby's (NYSE:WEN), the amalgam of two fast food companies, has been fighting through competition in the industry and is trying to grow its earnings in a tough climate. Estimates do project slight earnings increases for next year, although the company will need the economy to give it some breathing room so that WEN can, well, digest its own merger/acquisition better. That said, there is some indication that investors have piled on, and that they are excessively bearish on the stock. Something else to consider: Wendy's is the only company in this group of five stocks that had positive earnings last year.

The Bottom Line
There are bargains to be found among cheap stocks, but it will take some serious digging. It is recommended that an investor contemplating an investment in such a stock do a significant amount of analysis and look behind the numbers to ascertain whether it is a genuine bargain or a "value trap."

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares US Regional Banks

    Obtain information and analysis of the iShares US Regional Banks ETF for investors seeking particular exposure to regional bank stocks.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... 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. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. 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 >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. 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 >>

You May Also Like

COMPANIES IN THIS ARTICLE
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!