Heading into the three-day weekend, I thought I'd share some fun ideas, some old and some new, to think about over the next few days.
For reasons I still don't understand, many investment funds aren't allowed to invest in companies whose shares trade below $5, the reason being these companies are now considered "penny stocks" and too risky. What this literally means in many cases is that a company on Monday trading at $4.75 a share is deemed too risky for inclusion in a fund, but if it trades on Wednesday for $5.05, it can now be bought. Even worse, many funds have automatic sell triggers when such securities fall below a certain price.
So looking at securities trading below $5 has some real intrigue. One can buy shares at that level and, if they rise above $5, you potentially have tremendous buying power sitting on the sidelines that will step in and buy, sending the shares even higher. Also, many stocks trading below $5 have no analyst coverage -- it's not worthwhile.
Genspera (GNSZ) is a $30 million biotech company with a promising drug candidate, Mipsagargin, a novel drug that addresses various cancerous tumors. The company just announced another round of positive phase II trials and appears to be on the verge of entering a phase III trial. If that happens, watch out. The company recently signed an agreement with a global supplier whereby Genspera can source its key ingredient for producing Mipsagargin.
Bellatrix Exploration (BXE) is an energy company I wrote about yesterday. Since then, I've read enough to conclude that this company could be a potential multibagger waiting to occur. It should be noted that shares that now trade for under $3 were trading above $10 several months ago. But the real point here is that each share represents approximately two barrels of proven and probable reserves of oil. The company has one of the lowest costs of production and continues to produce more and more oil.
Spark Networks (LOV) is a $94 million online dating company. Spark is behind such sites as Jewish Networks and Christian Networks. The business is debt-free with nearly $10 million in cash. The margins are high and the business is scalable. It's a niche business but the management seems truly committed to maximizing shareholder value, and insider ownership is strong.
Despite the reasons noted above regarding stocks trading below $5, there are also disadvantages, the primary one being a low-quality, low-priced stock. In all instances, a stock price, whether $3 or $300, should always be evaluated against the value of the assets and future cash flows received.