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Top 10 Buy-Rated Stocks Under $5

6. Arena Pharmaceuticals (ARNA), which is currently seeking approval of its weight loss drug lorcaserin, has seen its share price fall 10% in 2010 thus far. The Food and Drug Administration has tentatively scheduled an advisory committee meeting to review the company's new drug application for lorcaserin on Sept. 16.

Consensus: Of the analysts covering Arena, eight, or 40%, advocate buying the stock. The other 12 analysts rating the stock suggest that investors hold it.

Closing Price: $3.23 (June 2)

Bullish Case: Davenport analysts have a buy rating for speculative investors in Arena, noting that lorcaserin's new drug application has reasonable chances of gaining approval from the FDA given the "extensive base of 7,000 plus patients that participated in the Phase III trials," which showed "very good tolerability." The firm has a price target of $5 to $6 a share.

Bearish Scenario: JMP Securities, which has a market perform rating on Arena, says that while the firm remains confident that lorcaserin "demonstrated an approvable efficacy profile in Phase III based on the current FDA guidance and a favorable safety profile, any indication that the FDA is looking for greater weight loss would be viewed as negative for lorcaserin."

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