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.
shares rose nearly 9% during a busy week for the satellite radio company. On Tuesday, Janco Partners analyst Martin Pyykkonen
from accumulate and raised his stock price target to $1.30 from 80 cents, citing the company's operating leverage on a market rebound.
Sirius XM shares didn't react much to the upgrade, though, and traded in a very narrow range. The stock opened Tuesday at 97 cents, went as high as 99 cents and closed at 96 cents. Volume, however, was a different story. More than 205 million shares of Sirius XM changed hands during the session, making it one of the most active stocks on the exchanges.
The following day,
said it added 171,441 net subscribers in the first quarter of 2010, ending the three-month period with 18.94 million subscribers. Sirius XM said deactivations fell by 11% compared with the first quarter of 2009, while gross additions rose 29%.
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Once again, the stock traded on massive volume, this time topping 216 million shares. And for the first time in more than a month,
April, as it turns out, has been an incredibly busy month for Sirius XM traders. The 50-day average daily share volume for Sirius XM currently is 166.66 million as of Friday. Only three times this month has daily share volume on Sirius XM fallen below that average. More than 251 million shares would change hands on Thursday, when the stock closed at $1.11.
Things may come to a head on April 29, when
will meet with a
listing committee for a hearing on the stock's continued listing on the exchange. Sirius XM has been unable to satisfy the
since the company was initially issued a warning in September 2009.
Janco Partners' Pyykkonen isn't concerned about a Sirius XM delisting, though.
"Sirius XM's stock is clearly right on the borderline in attempting to sustain a $1 or higher price for Nasdaq's minimum requirements," Pyykkonen wrote in his research note Tuesday. "The most likely scenario is for Nasdaq to grant a six month extension on a delisting decision."
While Sirius XM shareholders were buoyed by an analyst's comments,
stockholders found little comfort in an analyst's assertion that their investment was "worthless."
shares had traded below the $1 mark since December 2009 until the bond insurer reported an unexpected profit after the market closed on April 8. Ambac said it had net income of $558.1 million, or $1.93 a share, in the fourth quarter, compared with a year-ago loss of $2.34 billion, or $8.14 a share. The news was enough to nearly double the share price to $1.10 the following trading day.
The momentum rally persisted into this past week, with Ambac more than doubling to $2.25 during Monday's session on a whopping 415 million shares in volume.
The continued strength in Ambac was attributed to a massive short squeeze. According to the
New York Stock Exchange's
monthly short interest report, short interest on Ambac Financial increased to 60.4 million shares by the end of March, up from 54.4 million on March 15, making it one of the top 25 short interest candidates on the exchange.
Prior to the better-than-expected fourth-quarter results, it's no surprise Ambac had been a target for short traders. In March,
said it may consider a negotiated restructuring of its debt through a prepackaged bankruptcy proceeding or may seek bankruptcy protection without an agreement with major creditor groups on a reorganization plan. In addition, the Wisconsin Office of the Commissioner of Insurance (OCI), which regulates Ambac Assurance Corp., took control of $35 billion of its main subsidiary's liabilities.
Tuesday looked to be another winning session for Ambac shareholders, as the stock rode momentum higher all the way to $3.39 a share. However, shares pulled back sharply after JPMorgan analyst Andrew Wessel maintained his stance that the common equity "has no value."
"We believe any investment in
Ambac shares at this time is highly speculative, although we still believe a short in
Ambac equity will generate attractive long-term returns," Wessel wrote. "Basically, we feel the near-term volatility may not be worth the eventual long-term pay-off from a short."
Gavin Magor added that even at $3.39 a share, investors should have understood that
. Magor noted that the company still has a junk rating, adding that the 2009 results that people were trading on reflect the period before the OCI took action.
For now, it may appear that
by the NYSE, but that may be little consolation for anyone who bought Ambac for more than $3 a share only to see it finish out the week at $1.76.
surge over the last three trading sessions is more puzzling than encouraging at first blush. The stock jumped more than 60% in the absence of any company-specific news, ending the week at $5.46. The sharp move higher began Wednesday, with Encorium climbing by roughly a dollar each day through the rest of the week.
The surge -- which many traders and media outlets attributed to momentum trading -- is particularly surprising as it came a week after
as the company's independent registered accounting firm has not completed its audit of the company's financials.
Looking at a recent history of the company, it's hard to understand why Encorium shares would rally 60% on no news. Shares had been stuck below $1 since September 2008, often trading for less than a quarter, until the company implemented a reverse stock split in February in order to avoid a delisting from the Nasdaq.
Before the 1-for-8 reverse stock split took effect on Feb. 17, Encorium had warned investors that the stock's listing could very well be moved to the so-called pink sheets and would be subject to rules relating to penny stocks under the Securities and Exchange Act of 1934. Those requirements would make it more difficult to buy or sell our common stock in the open market.
Encorium is also burning through cash at an alarming rate. In its last quarterly report for the three months ended Sept. 30, 2009, Encorium said it began the year with $5.7 million in cash and cash equivalents, ending the latest period with only $318,243. In the third quarter alone, Encorium burned through roughly half a million in cash, according to regulatory filings.
Of course, any company with a low float of shares is susceptible to large percentage moves on big volume. Encorium has only 3.3 million shares outstanding and a float of only 2.1 million. The volume in Encorium shares over the past week raises more eyebrows. More than 2.3 million shares traded Wednesday when the stock began to pop, followed by 4 million in volume Thursday and 5.1 million on Friday when Encorium topped $6 on a split-adjusted basis for the first time in six months.
Internet message boards are littered with similar questions about the move last week in Encorium shares. "Very suspicious," one trader posted on Friday, while another argued that the stock is "pumped up right now on a crap shoot."
Other bullish investors noted that the trend is up and that Encorium could surprise with a strong earnings report following the delay.
Perhaps one trader posting on Twitter said it best when talking about Encorium: "This market is quickly becoming the countries biggest form of legalized gambling."
-- Written by Robert Holmes in Boston
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