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Tickers in this Article: YRCW, WERN, JBHT, USAT
Often touted as penny stocks, shares trading for less than $1 can carry some significant risks, the most significant being one of a total loss. Many "penny stocks" are pipe-dream stocks - companies with no operating history, real assets or earnings record. Below are names of companies that were once highly regarded in their industry, have assets and have a legitimate operating record. But they have fallen on hard times, so the risk of loss is still out there. On the other hand, if these names can regain a mere fraction of their previous valuations, the upside is huge.

IN PICTURES: What Is Your Risk Tolerance?

Keep On Truckin'

YRC Worldwide (Nasdaq: YRCW) is one of the largest trucking companies in the world. The current share price is 27 cents, giving this company a market cap of $320 million. To appreciate just how hard this company has fallen, consider that the share price once exceeded $60 back in 2006 and 2007. But that was then and this is now. The company has no shareholder equity but a deficit of $77 million after barely avoiding bankruptcy in 2009. For what it's worth, in the second quarter of 2010, the company reported a $9.5 million loss versus a $309 million loss in the year prior. However, with the current state of the balance sheet, no competitor even seems interested in buying the company.

It's a risky investment that should be avoided by most investors, especially when you have quality truckers like JB Hunt (Nasdaq: JBHT) and Werner Enterprises (Nasdaq: WERN) that will also benefit as trucking volume continues to improve. The attraction of YRC is its leverage; with so much debt, a continued improvement would magnify earnings results. But leverage is also what destroys most businesses.

A Better Bet

On the other hand, you have a business like USA Technologies (Nasdaq: USAT) that develops and installs terminals that enable vending machines, DVD kiosks and other self-serve machines to accept cashless forms of payment. Anytime you swipe a credit or debit card at a Coke machine, that's the product USAT is behind. The company sells the product, then collects a fee for every transaction. Shares trade for around 77 cents, the company has 34 cents per share in cash and virtually no debt. The future environment is very conducive to these types of devices. They offer convenience to customers and increased sales to vending machine operators. Most everyone is carrying a debit or credit card, but not many people are carrying spare change.

Untested Waters

Stocks trading for such low prices often carry inherent risks not found in other equities. But there are cases of successful companies that had to start really small. (For related reading, take a look at The Lowdown On Penny Stocks.)

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