The relentless bear market has given the

Nasdaq

at least 632 good reasons to take a hard look at its own rules -- and for investors to cross their fingers.

Check out

Ericsson

(ERICY)

, or

Handspring

(HAND)

, or

Time Warner Telecom

(TWTC)

, for instance. All three stocks sell for less than the required minimum of $1 a share, as does roughly one in six stocks on the Nasdaq.

That's notable because when stocks trade for pocket change for very long, they become subject to delisting from the exchange -- a fate nearly as bad as bankruptcy for investors, because delisted stocks typically become illiquid and hard to trade. With market indices having lost at least a third and as much as three-quarters of their value since 2000, an increasing number of stocks are crammed into this creaking boat.

These aren't all fly-by-night outfits, either. Even though some of these companies carry household names -- think

Corning

(GLW) - Get Report

,

Lucent

(LU)

,

Nortel

(NT)

-- they now face the same delisting dangers that pushed so many Internet highfliers of yore into the abyss. As a result, many are considering drastic measures that would have been unthinkable only a year ago -- including

reverse stock splits, a last-ditch strategy once reserved for residents of the pink sheets.

Although the sub-$1 price tags may make a few of these stocks look appealing for at least a flier -- how much lower can they go, after all? -- some experts say the best way to play the new penny-stock glut is to stay as far away as possible.

"Unfortunately, most investors think they are getting a deal just because the stock once traded so much higher," said Peter Homenuck, publisher of

The Penny Stock Insider

, an online penny stock newsletter. But in most cases, "we do not consider these companies bargains."

Know When to Hold 'Em

Together, the Nasdaq and the

NYSE

list around a dozen "major" companies (with market caps exceeding $500 million) that trade for less than $2 a share.

Among these are corporate giants that employ thousands of people and generate billions of dollars in annual sales. But these companies have already lost much of their might along with their market value. Experts predict that only a handful, at best, will escape delisting, even as a number undertake desperate measures to avoid that fate.

Given the extreme situation, Nasdaq may take steps to protect its deficient companies. The Nasdaq chairman, Hardwick Simmons, has mentioned the possibility of relaxing the $1 share price requirement, although a Nasdaq spokesman said this week "we can't just change that overnight," meaning hundreds of companies remain vulnerable in the interim.

"I don't ever recall a period quite like this," said George Putnam, editor and publisher of

The Turnaround Letter

, a newsletter that specializes in locating bargain stocks with real upside potential. "Back in the 1990s, the banking industry really got beaten up, and we saw some overreaction. But there are a lot of well-known names right now trading for under $3 a share."

Know When to Fold 'Em

Four major, once-healthy companies --

AES

(AES) - Get Report

, Ericsson, Lucent and Nortel -- already have plunged through the $1 floor and into penny stock territory. Unless the Nasdaq relaxes its rules, as some feel it might, Ericsson -- which hasn't traded above $1 in three months -- may be the first company to face delisting.

In the meantime, Nortel and others already have devised plans to pull their beaten-down stocks out of the danger zone. Both Nortel and Lucent are moving toward 1-for-30 reverse-stock splits, contractions that will dramatically change their share prices -- if not the companies behind them. The alternative is the equivalent of a death sentence for most publicly traded companies; those that are delisted almost never claw their way back onto a major exchange.

"It does happen occasionally," said Jay Ritter, a finance professor at the University of Florida. "But most of the time, the company is already in a death spiral."

Know When to Walk Away

AES, which hovers around $1 on the NYSE, illustrates the dangers of playing the cheap-stock game: Some industry experts point to the flailing utility as one of the riskiest stocks around.

"That's one we don't like," said Putnam, who recommends

Infonet

(IN)

,

ADC

(ADCT) - Get Report

and even Lucent instead. "It has a lot of debt -- and debt is the first thing we look at."

Peter Cohan, a Massachusetts author and investment strategist, immediately noticed AES' astounding 5.47 debt-to-equity ratio as well. But he also discovered another big company that, if possible, looks even more dangerous.

UnitedGlobalCom

(UCOMA)

, an international cable provider, sells for $1.70 -- double last year's low -- despite a lack of shareholder equity, a measure of a company's net worth.

"It's essentially bankrupt," Cohan said. "It really looks dicey. I don't understand why it's trading at all."

Know When to Run

Cohan hasn't written off every big company in the bargain bin, though.

Like Putnam, he found himself taking a second look at Infonet. The communications company lost $52 million last quarter, but it has a $500 million cash pile that's five times bigger than its debt load.

Sometimes, cheap stocks do work out for investors, bargain hunters say. Putnam discovered

Offshore Logistics

(OLOG)

after it had just restructured outside of bankruptcy and was trading for 75 cents a share. Today, the oilfield services company trades in the $20 range and, at its peak, commanded more than $25 a share.

"We saw that they were getting their debt in line," Putnam said. "And they had a new management team. Management that gets a company into trouble isn't always able to get it out."

But some experts simply aren't tempted by ultra-cheap stocks, fallen or future stars either one. They see no reason to buy dime store merchandise with so many quality companies on sale.

In fact, Tulsa money manager Fredric E. Russell decided to liquidate his position in

Williams

(WMB) - Get Report

-- now a sub-$2 stock -- at a loss rather than hope for a turnaround journey that looked "torturous at best." Since then, he's been loading up with more shares in strong performers like

Family Dollar

(FDO)

and

Johnson & Johnson

(JNJ) - Get Report

.

"In an economy where you can buy debt-free or near debt-free companies with good franchises cheap, why torture yourself?" he asked. "Life is too short to buy $2 stocks -- and I don't want to be delisted myself."