NEW YORK (
Stocks trading for less than $5 can experience large percentage moves on heavy volume for any number of reasons.
Dollar Store examines some of this week's biggest under-$5 stock movers and the catalysts for the trading action.
( PALM) shares surged more than 33% during the week to climb to more than $5 as takeover rumors once again swirled. On Friday, Taiwanese newspaper
was the source of the latest takeover rumor, which said that
. Earlier in the week, Palm rallied after renewed market chatter of a buyout by PC maker
The rumors sparked heavy trading volume in Palm during the week, with 83.3 million, 46.4 million and 62.6 million shares changing hands on Wednesday, Thursday and Friday, respectively. Compare that with Palm's 50-day average daily share volume of 24.5 million.
Takeover rumors are nothing new to Palm investors.
have all been labeled as suitors for Palm at one time or another. In late 2009, when Palm shares traded north of $10, speculators had
buying the struggling handset maker. Nokia was also rumored to be interested in Palm back in 2007; Palm shares were closer to $20 at that time.
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At this point, a buyout may be Palm's only saving grace. Last month,
would come in at less than $150 million, compared with the analyst target of $305 million on March 18. Several analysts either downgraded the stock or reduced their stock price targets, questioning how long the nearly $600 million Palm has in the bank will last. One analyst even reduced his price target to zero.
"Clearly we've hit a speed bump. No question about it,"
last week. "It's really disappointing, and it's frustrating. ...We do have $590 million in the bank, and we have a plan that carries this company forward."
For now, the takeover rumors are buoying the stock price. But if the speculation doesn't pan out like the
of 2007 and 2009, traders had better enjoy the run while it lasts.
management needs to learn a thing or two about consolidating its press releases. If Zanett could deliver all of its news at once, perhaps the company would face less scrutiny from angry traders who are calling it another
said it signed $17.1 million in new business during the first three months of 2010. Shares of Zanett soared higher by more than 75%, as volume topped 10.7 million shares, more than 10 times normal amounts. Zanett issued a press release with the news using excitable terms such as "Wow!" and "business is booming!" and "barely keep up with the demand."
Less than 12 hours later,
said in a regulatory filing it will issue a convertible note in principal amount of $7.13 million in exchange for a $5.32 million promissory note and $3 million line of credit. The new convertible note bears a rate of 7.95% and matures in March 2015 with an initial conversion price of $2.08 per share. Compare that with Zanett's closing price Tuesday of $3.27.
Needless to say, Zanett investors weren't happy that news of dilution came so quickly after the very bullish PR Tuesday morning. This should have came as little surprise to those who have followed Zanett in the past, though.
made headlines on March 3 when it acknowledged it would receive a second delisting notice from the
after it failed to meet the exchange's minimum bid price requirement before a March 15 deadline. At the time, shares hovered around 30 cents a piece.
One day later, Zanett announced the closing of over $12 million in new business during the first two months of 2010, and shares rallied to more than $3 in subsequent sessions. The rapid ascent in share price left investors to wonder why Zanett had not included the contract news with the Nasdaq delisting warning, much like the way investors now are wondering why Zanett wouldn't include the financing news at the same time it announced the $17.1 million in new business.
The lesson here is simple: If Zanett issues a press release, investors may be better off waiting until the company spits out all the words before they take a position in the stock.
shares were all over the charts this week, falling as low as $2.42 and trading as high as $3.69. Trading volume was heaviest on Wednesday after Star Scientific announced a collaboration with Roskamp Institute on Beta-amyloid discovery to treat Alzheimer's disease. According to the company, preliminary tests showed that when a compound developed by Star Scientific is applied to cells, B-amyloid is reduced. The stock immediately shot higher but quickly retreated after traders began to parse the news release.
The major sticking point in Wednesday's release was Star Scientific's warning that the results of preliminary testing do not necessarily translate to human testing, and additional work needs to be completed to determine whether the compound will have significant B-amyloid lowering effects in humans. By the end of the session, the stock had lost more than 16%.
Worry over the compound's effect in humans didn't stop one writer on Seeking Alpha from assigning
. The article, which hypothesized that Star Scientific's compound is not a drug but instead a "nutraceutical" that can be easily tested in humans, was cited as the catalyst for the 13% jump in shares on Thursday.
Some wary traders posting on Twitter called the $15 to $20 price target range for Star Scientific "wild." Several Internet posts made note that the author of the Seeking Alpha article held a long position in Star Scientific. Others noted that Star Scientific, which traded under the ticker symbol STSI until late 2009, has been unprofitable quarter after quarter.
With all the talk of finding a cure for Alzheimer's, heavy insider buying went almost unnoticed by traders. Regulatory filings on Wednesday showed that several Star Scientific insiders bought up large amounts of stock at $2.72 a share, which gave believers in the company another reason for optimism.
-- Written by Robert Holmes in Boston
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