$5 Stocks: Bargains Or Bummers?

By Greg Sushinsky | January 06, 2010 AAA

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."

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