Dumb Luck Investor: Betting On Those $1 Stocks

It was encouraging news for investors, who were convinced that shares in the company could never simply wind up worthless -- especially as MCI anticipated emerging this fall from the nation's largest-ever bankruptcy. Still, despite a stock selling for pennies, investors should not overlook MCI's roots -- its massive debt burden and the $11 billion accounting scandal that had shaken the company to its core.

Granted, when a stock trades for a dollar or less, it's easy to roll the dice and forget the past. (In fact, MCI now says it had $3.3 billion in cash by the end of last month, a $500 million improvement on its January-end bank balance.) This does not translate, however, into a stock whose share price automatically rebounds to new highs.

Despite muted optimism among many existing shareholders given the modest March profit, even MCI has admitted that its own shares may ultimately be valueless. In a press release issued by MCI not that long ago, the company itself said, "MCI believes that when it emerges from bankruptcy proceedings, its existing WorldCom and Intermedia preferred stock and WorldCom group and MCI group tracking stock issues will have no value."

In other words, investors can take a chance on those poor, cheap, beaten-down stocks and hope for the best. But they shouldn't forget that, as with the rest of things in life, you still usually get what you pay for.