What is a 'Stub'
A stub is the balance part of a check or receipt that is retained for record-keeping purposes or as proof of payment. In the context of securities, a stub refers to a residual security that is left over after being separated from the parent security. The term may also refer to a stock formed from the conversion of a company's bonds under distressed conditions, such as a bankruptcy or recapitalization.
BREAKING DOWN 'Stub'
As residual securities, stubs are not viewed as very desirable instruments, since the parent security may retain most of the attractive attributes of the original investment.
Stub stocks derive their name from their low price, which is usually a fraction of the value of the bonds from which they have been converted. The low stock price reflects the uncertainty surrounding the recapitalized company, and makes stub stocks a highly speculative investment with the potential for significant positive returns if the company is successful in making a turnaround.