Shares for less than a buck? Hundreds of stocks face delisting on NYSE, Nasdaq
Filed under: Economy, Investing
How low can some stocks go? Not just in terms of price, but in quality?The market's remarkable 50-plus percent meltup since early March hasn't been an equal-opportunity rally. Lower quality stocks (generally companies with weaker balance sheets and riskier prospects) have tended to greatly outperform higher quality stocks (generally companies with lots of cash, little debt and proven businesses).
That rush to lower quality might seem counterintuitive at first, but it makes a lot of sense. After all, the greater the risk, the greater the reward, and with the Dow Jones Industrial Average ($INDU) still 30 percent off its all-time high, market pros are looking to recoup losses as quickly as possible.
So what then do we make of stocks that can't even break the buck-a-share plateau? Such securities are usually called penny stocks. They trade over the counter or on the Pink Sheets. They're not subject to the same sort of regulatory requirements as stocks traded on major exchanges like NYSE and Nasdaq, and many mutual funds, pension funds and other institutional investors are forbidden from owning them.
In other words, investors needn't pay attention to penny stocks. There are some exceptions, of course, but for the most part, over-the-counter issues are best left to pump-and-dumpers and other boiler-room grifters. They just don't belong in most folks' portfolios.
All of which makes it somewhat alarming that there are nearly 200 stocks trading on the NYSE or Nasdaq that fetch less than $1 a share, USA Today reported Monday -- and they are in danger of being delisted and consigned to the netherworld of OTC trading.
During the meltdown the major exchanges suspended the rule that gets a stock delisted if it trades below a buck for 30 consecutive days. But the rule was brought back in early August, putting some household names, including Sirius XM Radio (SIRI), Jones Soda (JSDA) and Joe's Jeans (JOEZ), in danger of getting the boot.
That begs the question: What's wrong with these guys that they couldn't even get a tailwind from the rush back to risk and lower quality securities? As USA Today notes, there were nearly double the number of securities trading below $1 at the end of 2008, but the rally has since saved about half of them.
"If you believe in traditional valuation theory, then the market is saying that the prospects for these companies' future earnings or cash flow are not very good," says Tony Cherin, professor of finance, emeritus, at San Diego State University. "Part of it is attributable to being overly pessimistic -- the market is always too optimistic or too pessimistic. With these stocks the market is very pessimistic about earnings coming out of the recession."
Yup, poor earnings prospects don't get much love from the Street. Jones Soda, for example, hasn't posted a profit since June of 2007, according to Capital IQ, and isn't expected to do so anytime soon, according to Thomson Reuters. Sirius hasn't been in the black on the bottom line since March of 2003 -- and isn't seen producing positive earnings per share until 2011. And as for Joe's Jeans? Well, it's profitable and growing, but not enough to support a higher valuation than shares sport now. Indeed, for its current fiscal year, Joe's Jeans is forecast to earn just 6 cents a share, according to Thomson Reuters.
True, just because a stock is in danger of delisting doesn't mean banishment to OTC status is inevitable. Delisting is a lengthy process, the stock could come back, or the company could always pull a reverse split.
But unless you're a high-rolling speculative investor, you'd do well to pretend these stocks don't exist for now. The market won't touch these low-quality equities with someone else's ten-foot pole. Why would you?
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Reader Comments (Page 1 of 3)
10-05-2009 @ 5:20PM
monte said...
here is the latest list of penny stocks,GMC, bank of america
chrysler,america is in the crapper!!!!!
Reply
10-05-2009 @ 6:33PM
prete ryback said...
the reason is that obama has no clue and also hates private enterprise, he is a marxist and he needs to go away fast, any means justifies getting rid of this parasite
10-06-2009 @ 9:36AM
bailoutsos said...
Didn't they get the memo from Bernanke that the recession is over?
10-05-2009 @ 5:54PM
Fred said...
Bank of America (BAC) is NOT a penny stock!!
Reply
10-05-2009 @ 6:41PM
monte said...
it will be your dollar will be worthless very soon
10-05-2009 @ 6:10PM
O640 said...
NYSE, the State of California, FDIC - How much more can the society take?
Unemployment comp to go to 79 weeks, what then?
Reply
10-05-2009 @ 6:06PM
Wise Man said...
I think you would do well to pretend the stock market itself does not exist!!
Yes, in the "old days" you could generally count on a rising market most years. However, these are perilous times we live in. Cash is King!!
The number one question is, WHO CAN YOU TRUST!!!!!
My thought is, you cannot trust anyone!!!!!!!! Far too many crooks to trust my hard earned money with.
You folks on Wall Street can starve like the rest of America. Screw the Market!! Cash in hand always trumps an I.O.U. in the drawer. And with all the gimmicks, most of the I.O.U's are worthless anyway.
Every sector of the economy is teetering on the edge of oblivion. Why would anyone hand over their hard earned dollars to the likes of BofA, GM, or AIG? Forget it brother.
Again, who can you trust in this crooked economy???
Reply
10-05-2009 @ 7:47PM
patrick said...
very well said, i see you are wise man
10-05-2009 @ 6:11PM
4a304c5c said...
Who will go broke first NYSE or the State of California?
Reply
10-05-2009 @ 6:24PM
Andy said...
Cali is already bankrupt.
10-06-2009 @ 11:00AM
clem said...
if the funds paid in taxes by califonina stayed in califiorina it would be in great shape the issue is they get a dime on the dollar back from DC where the goofy mid states like montana get hundreds back on every dollar they give DC
I am ready for mexifornia the rest of ya stay the hell out and we are not going to suport you any longer
10-05-2009 @ 6:24PM
Andy said...
I'm telling you folks as I always do invest in GOLD!!!. Protect yourselves.
Reply
10-05-2009 @ 6:57PM
Will said...
Seeing that we are only 18 months from the Rapture, that is,
May 21, 2011, investing in anything in this world is futile. This world is condemned by the Lord, and is slated for total destruction.
So, while investing in gold may sound good, perhaps it is best to invest in your "Spiritual Man". And, to use Wise Man's thoughts, the number one question has to be, "Where will you spend eternity"? Eternity is just around the corner now.
Let us put our financial concerns into perspective. We won't need finances in 18 months!!
http://www.ebiblefellowship.com/may21/index.html
Reply
10-05-2009 @ 9:12PM
wayne said...
I have over $831,000 in stocks
Reply
10-05-2009 @ 10:06PM
Will said...
Yeah, $ 831,000 in stocks. But for how long? In 18 months, those $ 831,000 in stocks will be worth 000,000.
Then what will you have? Only a fool chases after the wealth of this dying world. Link to the EBible site above.
10-05-2009 @ 7:17PM
tom said...
Laid off yet, keep voting republican and you will. Without Health care too.
Reply
10-05-2009 @ 7:58PM
Fair Minded said...
Last time I checked, there was a Democrat in the White House. I do believe they control the House, and 50% of the Senate.
Let's see, Democrats now control the White House, and the nations pocketbook. I wonder how concerned they are with the average American Joe on Main Street?
The White House is awfully quite about the # 1 issue facing this country-NO JOBS!!!! THE MIDDLE CLASS IS BROKE!!
All I hear about is trying to jam some Universal Healthcare Package down our throats. If not Healthcare, then we need to worry about the Gays in the military.
Hello, Mr. Democratic President. What are you doing to bring meaningful economic stability to this country?
Hello, Hello, anybody home???
10-05-2009 @ 7:47PM
exsm said...
Funny how people keep forgetting that not to long ago the dollar lost it value and the Euro was worth more then the dollar. Gold was past $800.00. The bills was changed at least 3 times and each time new color was added making the money most people used up till Bush got in office worthless. Many people probably already forgot what the old twenty dollar look like. Houses was totally unaffordable. Gas was sky high and so was many household products. Some is still high today, but overall everything went down since Bush went home. All of the things that is mention happen sometime within 8 years of Bush presidency.
Reply
10-05-2009 @ 7:50PM
exsm225 said...
Funny how people keep forgetting that not to long ago the dollar lost it value and the Euro was worth more then the dollar. Gold was past $800.00. The bills was changed at least 3 times and each time new color was added making the money most people used up till Bush got in office worthless. Many people probably already forgot what the old twenty dollar look like. Houses was totally unaffordable. Gas was sky high and so was many household products. Some is still high today, but overall everything went down since Bush went home. All of the things that is mention happen sometime within 8 years of Bush presidency.
Reply
10-05-2009 @ 8:57PM
don said...
you are right every thing has gone down including the job market with unemploiment the highest it has been since thf 1930s