BOSTON ( TheStreet) -- Stocks under $5, such as Evergreen Energy ( EEE) and Acceler8 Technology ( AXK), have more than doubled this year, trouncing the broader market and surprising investors who haven't heard of these penny-stock companies.

Money managers argue that investors should move into less risky asset classes like large-cap equities after the rapid appreciation small-cap stocks have enjoyed during the two-year bull market. But small-cap stocks continue to perform as well or better than broader market averages. The Russell 2000 index -- a benchmark for small-cap stock performance -- is up nearly 5% so far in 2011, matching the performance of the Dow Jones Industrial Average and outpacing both the S&P 500 and Nasdaq Composite.

Analysts expect stocks under $5, like Sprint Nextel ( S) and SatCon Technology ( SATC), will outperform this year, but those companies haven't been among the biggest winners. Penny stocks including Evergreen Energy have surged as much as 300%.

Investors in penny stocks must be prepared to lose it all. The risk of a sharp, quick selloff is elevated for investors in these companies. For example, LECG Corp. ( XPRT) dropped 85% this year to 20 cents, Tasty Baking ( TSTY) has tumbled 72% in the quarter to $1.76 and Jackson Hewitt Tax Services ( JTX) is down 71% to 63 cents.

Still, many inexpensive stocks have generated huge returns for lucky stock pickers. The following pages detail the best-performing stocks under $5 this year on the New York Stock Exchange, Nasdaq and NYSE Amex, ranked by total return for the quarter.


10. Innovaro ( INV)

Company Profile: Formerly known as Utek Corp., Innovaro helps companies enhance their innovation capabilities and create value from their intellectual property.

The stock spiked in February after Innovaro announced that it had entered into a consulting-services agreement with a major Asian telecommunications company. On Feb. 28 and March 22, following increased volume and a rapid increase in share price, Innovaro said the NYSE Amex had contacted the company and requested a press release regarding the increased market activity. Both times Innovaro declined to do so.

Current Share Price: $3.12 (March 29)

First Quarter Total Return: 118%

Analyst Ratings: No Wall Street firm has coverage of Innovaro. In addition, TheStreet Ratings doesn't currently have a rating on Innovaro.

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9. Spar Group ( SGRP)

Company Profile: Spar Group is a merchandising and marketing services company, providing an array of services to help companies improve their sales, operating efficiency and profits at retail locations.

Shares of Spar Group surged in March after the company said fourth-quarter revenue grew 32% to $18.7 million from a year earlier, with net income quadrupling to $1.2 million, or 6 cents a share. The company attributed its success in the quarter to increased market share in domestic operations, acquisitions and organic growth, and international operations thanks to redeveloped key partner relationships.

Current Share Price: $1.87 (March 29)

First Quarter Total Return: 125%

Analyst Ratings: Spar Group doesn't have an analyst following from Wall Street research firms. However, TheStreet Ratings has a "buy" rating on Spar Group, noting the company's "revenue growth, notable return on equity, good cash flow from operations, solid stock price performance and impressive record of earnings per share growth."


8. USA Technologies ( USAT)

Company Profile: USA Technologies is a supplier of cashless, remote management, reporting and energy management services.

Shares of USA Technologies ramped higher in January after the company said revenue in its fiscal second quarter jumped 60% from a year earlier to $6 million, while its net loss narrowed to a penny a share from a loss of 19 cents. Shares pulled back slightly in March after USA Technologies announced it raised nearly $11 million in a private placement of common stock.

Current Share Price: $2.35 (March 29)

First Quarter Total Return: 128%

Analyst Ratings: Janney Montgomery Scott is the only research firm with coverage of USA Technologies, rating the stock a "hold" with a price target of $1.25.

TheStreet Ratings has a "sell" recommendation on USA Technologies, citing disappointing return on equity.

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7. Independent Bank ( IBCP)

Company Profile: Independent Bank is a commercial bank in Michigan. It provides checking and savings accounts, commercial lending, direct and indirect consumer financing and mortgage lending.

Shares of the Michigan company climbed after Independent Bank said its net loss applicable to shareholders shrank to $4.9 million, or 65 cents a share, in the fourth quarter, compared to a year-earlier loss of $48.2 million, or $20.49 a share. On Feb. 16, Independent Bank announced its senior management succession plan, although shares pulled back shortly after when the company announced the unregistered sale of 253,000 shares of common stock to Dutchess Opportunity Fund II as part of an investment agreement established in July 2010.

Current Share Price: $3.23 (March 29)

First Quarter Total Return: 148%

Analyst Ratings: Stifel Nicolaus is the only research firm currently following Independent Bank, recommending that investors hold on to shares.

TheStreet Ratings has a "sell" rating on Independent Bank, noting that despite the recent stock rally, shares are down sharply in the past two years and underperform the S&P 500. "Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter," the March 20 research note reads.


6. Star Buffet ( STRZ)

Company Profile: Star Buffet is a multi-concept restaurant holding company, which operates throughout the southeastern and western U.S.

Shares of Star Buffet came under pressure in late 2010 as the company wasn't in compliance with one financial covenant under its credit facility with Wells Fargo Bank. However, the bank hasn't elected to terminate the credit facility and accelerate the due date of outstanding obligations. As of Nov. 1, Star Buffet owed nearly $2.5 million on its revolving credit line and almost $3.8 million under a term loan.

With the immediate threat of a bankruptcy waning, Star Buffet shares rocketed higher in January. Still, the company faced three separate notices from the Nasdaq that the stock was subject to delisting. Star Buffet isn't in compliance with the Nasdaq's listing qualifications due to the delinquency in filing its third-quarter financial statements.

Current Share Price: $1.65 (March 29)

First Quarter Total Return: 162%

Analyst Ratings: No research firm has coverage of Star Buffet. However, TheStreet Ratings has a "sell" recommendation on Star Buffet, citing "feeble growth in its earnings per share, deteriorating net income, generally weak debt management, disappointing return on equity and weak operating cash flow."

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5. BioLase Technology ( BLTI)

Company Profile: BioLase Technology is a medical-technology company that manufactures and markets lasers, related products and services focused on technologies for improved applications and procedures in dentistry and medicine.

Shares of BioLase surged in late January after the company issued annual revenue guidance for 2011 in the range of $55 million to $60 million, representing growth of 120% to 140% over 2010.

Current Share Price: $4.70 (March 29)

First Quarter Total Return: 168%

Analyst Ratings: BioLase doesn't have a following from Wall Street research firms. However, TheStreet Ratings has a "sell" rating on BioLase, saying the company's biggest weakness has been declining revenue. "Since the same quarter one year prior, revenues slightly dropped by 6.1%," the March 20 research note reads.


4. Central Federal ( CFBK)

Company Profile: Central Federal is the holding company for CFBank, an Ohio-based community-oriented financial institution offering financial services.

Shares rallied in January after Central Federal said it had regained compliance with the Nasdaq's minimum bid price requirement. The stock was subject to delisting if it didn't close above $1 a share for a period of time. In February, Eloise Mackus, who had been serving as the company's interim CEO since May 2010, was officially appointed to the top executive position.

Current Share Price: $1.39 (March 29)

First Quarter Total Return: 172%

Analyst Ratings: Central Federal isn't followed by research analysts. However, TheStreet Ratings has a "sell" recommendation on Central Federal, noting "disappointing return on equity and weak operating cash flow."

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3. Acceler8 Technology ( AXK)

Company Profile: Acceler8 Technology develops materials and instrumentation for applications in medical instrumentation, basic research, drug discovery and bio-detection.

The stock surged in the absence of any headlines in January, prompting an inquiry from the NYSE for the unusual volume activity. Acceler8 shares again spiked in February after the company said an evaluation agreement with Novartis ( NVS) was extended to June 30. Novartis will pay the company a monthly fee for an exclusive right extension that runs through April 13.

Current Share Price: $3.70 (March 29)

First Quarter Total Return: 273%

Analyst Ratings: No Wall Street firm covers Acceler8 Technology. TheStreet Ratings has a "hold" rating on Acceler8's stock, arguing that the company's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity" are counterbalanced by the company's "poor" profit margins.


2. Evergreen Energy ( EEE)

Company Profile: Evergreen Energy is a so-called cleaner coal company.

On Jan. 5, Evergreen was granted an extension by the NYSE Arca to regain compliance with listing rules regarding minimum bid price and market value of publicly traded shares. By March 3, Evergreen regained compliance with the listing standards.

The stock hit a 52-week high shortly after the company completed a $16 million private placement of common stock. Shares pulled back, though, after Evergreen posted financial results for 2010. Revenue for the year fell to $403,000 from $423,000 in 2009.

Current Share Price: $2.66 (March 29)

First Quarter Total Return: 309%

Analyst Ratings: No research firm has coverage of Evergreen Energy. In addition, TheStreet Ratings doesn't follow the stock.

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1. Majesco Entertainment ( COOL)

Company Profile: Majesco Entertainment makes video games mainly for the family-oriented, mass-market consumer.

Majesco's incredible run this year started on Jan. 11 when the company announced it had shipped more than 500,000 copies of its Zumba Fitness video game title for the Wii, Xbox 360 and PlayStation 3. In late January, the company announced that it regained compliance with the Nasdaq's minimum bid price requirement for continued listing.

In early March, shares of Majesco climbed higher after the company posted better-than-expected fiscal first-quarter financial results, with revenue jumping to $48.5 million from $29.2 million in the same period a year earlier.

Current Share Price: $3.20 (March 29)

First Quarter Total Return: 315%

Analyst Ratings: Majesco garners a lone "buy" rating from Needham & Co. and a "neutral" rating from Wedbush. Coincidentally, both research firms have a $2.50 price target on the stock.

TheStreet Ratings has a "hold" recommendation on Majesco Entertainment. The research report from March 20 says revenue growth, a largely solid financial position with reasonable debt levels and solid stock price performance are strengths that are countered by the company's weak cash flow from its operations.

-- Written by Robert Holmes in Boston.

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