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.
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.
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."
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."
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.