Best-Performing Stocks Under $5 in 2011

BOSTON ( TheStreet) -- Stocks under $5, such as Evergreen Energy ( EEE) and Majesco Entertainment ( COOL), may not garner much attention from investors, but many have doubled and even tripled already this year in a period of weakening global economic growth.

Small-cap stocks have been the big winners during the two-year bull market that followed one of the worst global recessions. Even though money managers argue that now is a time for investors to get defensive and move into less-risky asset classes like large-cap equities, small-cap stocks continue to show strength.

The Russell 2000 index -- a benchmark for small-cap stock performance -- is up 2% so far in 2011, slightly below a gain of 3.6% the Dow Jones Industrial Average. However, the Russell 2000 is outpacing both the S&P 500 and Nasdaq Composite this year.

Analysts expect stocks under $5 such as Sprint Nextel ( S) and DryShips ( DRYS) to outperform this year, but those companies haven't been among the biggest winners. Penny stocks including Authentidate Holdings ( ADAT) have doubled over the first half of the year.

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, OptimumBank Holdings ( OPHC) and Evergreen Solar ( ESLR) are down more than 85% this year already.

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 through the first six months of 2011.


10. 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.

In April, USA Technologies announced a collaboration with Verizon Wireless for connectivity that enables wireless point-of-sale payments at vending machines via credit and debit cards. Earlier this month, the stock was added to the Russell Microcap Index as part of its annual reconstitution.

Current Share Price: $2.35 (June 27)

2011 Total Return: 128%

Analyst Ratings: Northland Securities has an "outperform" rating and $3 price target on USA Technologies. The only other research firm covering the company, Janney Montgomery Scott, rates the stock "neutral" with a price target of $1.25.

TheStreet Ratings has a "sell" recommendation on USA Technologies, citing "unimpressive growth in net income and poor profit margins."

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