Stocks Under $5 With Most 'Buy' Ratings

BOSTON (TheStreet) -- Stocks under $5, like SatCon Technologies (SATC) and A123 Systems (AONE), typically attract traders looking to book a quick profit, but many low-priced stocks can be solid long-term investments instead of a short-term risky trade.

The biggest hurdle is finding which stocks trading below $5 represent the best long-term investment. Stocks trading under $5 typically have no analysts' coverage -- never mind a "buy" rating -- leaving investors to do the homework for themselves. However, a select few boast of favorable coverage from analysts, which can direct share-price movements.

Many high-volume stocks under $5 have proven to be huge winners, including Evergreen Energy ( EEE) and Majesco Entertainment ( COOL), which have more than doubled this year.

So far this year, many of the stocks under $5 that analysts are most bullish on are falling hard amid worry over the stability of the economic recovery. The following 10 U.S. stocks trade at less than $5 and have gotten the most "buy" ratings from analysts, with the bullish scenario for each laid out for investors.


10. Comverge ( COMV)

Company Profile: Comverge provides products and services to the electric power markets in North America, focusing on demand response and advanced metering systems.

Share Price: $2.99 (June 27)

Stock Performance This Year: -57%

Analyst Consensus: Eight analysts have a "buy" rating on Comverge, including those at firms like R.W. Baird. However, 10 other firms recommend investors hold shares, including Stifel Nicolaus and Piper Jaffray. The average analyst price target of $6.45 represents potential upside of 115% from current levels.

Bullish Case: ValuEngine issued a "buy" recommendation on Comverge earlier this month, highlighting the company's "attractive market valuation, price/sales ratio and expected earnings per share growth." ValuEngine noted that the stock should be trading at $9.84 based on the firm's fair value model.

On the other hand, TheStreet Ratings has a "sell" rating on Comverge due to "disappointing return on equity and generally disappointing historical performance in the stock itself."

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9. BPZ Resources ( BPZ)

Company Profile: BPZ Resources is an independent oil and gas company focused on the exploration, development and production of oil and natural gas in Peru and Ecuador.

Share Price: $3.29 (June 27)

Stock Performance This Year: -31%

Analyst Consensus: Eight analysts have a "buy" rating on BPZ Resources, including those at firms like Raymond James and MKM Partners. However, three other firms recommend investors hold shares and one lone analyst says investors should dump the stock. The average analyst price target of $7.39 represents potential upside of 124% from current levels.

Bullish Case: Canaccord Genuity analyst J. Frederick Kozak is forecasting a nearly 200% return in shares of BPZ Resources. While Kozak notes that the company has suffered development challenges, he argues that BPZ now has commercial production on its offshore Corvina field. "With an ongoing search for a strategic partner and debt financing secured, we believe the outlook for the company is improving," Kozak wrote in a June 17 research note.

TheStreet Ratings has a "sell" rating on BPZ Resources, due to "deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."


8. Gastar Exploration ( GST)

Company Profile: Gastar Exploration is an independent energy company that engages in the exploration and production of natural gas and oil primarily in the U.S.

Share Price: $3.39 (June 27)

Stock Performance This Year: -21%

Analyst Consensus: Eight researchers have a "buy" rating on Gastar shares, including analysts at KeyBanc Capital and SunTrust Robinson. The other two analysts covering the stock say investors should hold shares. The average analyst price target of $5.97 implies potential upside of 76%.

Bullish Case: In a June 2 research note, KeyBanc Capital analyst Jack Aydin reaffirmed his "buy" rating on Gastar along with a price target of $5.75. Aydin points out the size and leverage of its Marcellus shale position of approximately 73,000 net acres, along with the expected ramp up in activity in the second half of 2011 and production growth momentum into 2012.

"With the recent market correction, shares have underperformed significantly...and we believe any weakness today could provide an entry point for investors interested in a micro-cap growth name leveraged to the Marcellus shale play of West Virginia," Aydin wrote in his report.

TheStreet Ratings has a "sell" rating on Gastar's stock because of "feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

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7. Paetec Holding ( PAET)

Company Profile: Paetec Holding provides data and voice communication services to enterprises and other telecom carriers. The company recently acquired Cavalier Telecom, which has added to sales, but Paetec is still struggling to recover from the recession.

Share Price: $4.44 (June 27)

Stock Performance This Year: 18%

Analyst Consensus: Of the 14 analysts following Paetec, eight have a "buy" rating on the stock and another five say investors should hold shares. One firm has a "sell" rating on the stock. The average price target of $5.93 represents 33% upside potential.

Bullish Case: D.A. Davidson analyst Donna Jaegers wrote in a May 24 research note that the stock's current price undervalues the Paetec's "strong existing customer base and fiber assets. We think PAET is a good value investment at current prices and think the stock can move up from the $6.50 level in the next year," Jaegers wrote.

Jaegers also notes that Paetec's management was upbeat on data center sales during the company's analyst day in May, as the company "has approximately $40 million to $50 million in data center revenues currently and hopes to grow that to $400 million by 2015."

Meanwhile, TheStreet Ratings has a "sell" rating on the communications company, citing "deteriorating net income, generally weak debt management, disappointing return on equity and feeble growth in its earnings per share."


6. Keryx Biopharmaceuticals ( KERX)

Company Profile: Keryx is a biopharmaceutical company with a focus on products for the treatment of life-threatening diseases, including renal disease & cancer.

Share Price: $4.62 (June 27)

Stock Performance This Year: 1%

Analyst Consensus: Eight analysts have a "buy" rating on Keryx, including those at firms like Oppenheimer and Ladenburg Thalmann. The only other research shop following the company rates the stock a "hold." The average analyst price target of $10 represents potential upside of 103% from current levels.

Bullish Case: Oppenheimer analyst Boris Peaker wrote in a June 7 research note that he is "cautiously optimistic about the ongoing Phase III trial of perifosine in late-stage colorectal cancer," and that his model suggests a price target for Keryx of $8. He bases this target on the assumption that the patent expiration set for July 2013 will be extended by five years to July 2018.

TheStreet Ratings does not cover Keryx Biopharmaceuticals.

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5. A123 Systems ( AONE)

Company Profile: A123 Systems designs and produces advanced rechargeable lithium-ion batteries and battery systems for hybrid electric vehicles, plug-in hybrid electric vehicles, and electric vehicles.

Share Price: $4.94 (June 27)

Stock Performance This Year: -48%

Analyst Consensus: Eight analysts have a "buy" rating on A123 Systems, including those at firms like Lazard Capital and Craig-Hallum Capital. Five other firms recommend investors hold shares, and two others say investors should sell the stock. The average analyst price target of $9.73 represents potential upside of 97% from current levels.

Bullish Case: On May 17, Bank of America/Merrill Lynch analyst Steven Milunovich upgraded A123 Systems to "buy" from "neutral" with a price target of $8 based on the company's risk/reward tradeoff.

"After spending time with the management, we have become more confident that the company is positioned to win new contracts and build a long-term advanced battery franchise," Milunovich wrote in the research report. "We see potential contract wins and accelerating performance in the second half creating more investor interest in the stock."

TheStreet Ratings does not currently follow A123 Systems.


4. SatCon Technology ( SATC)

Company Profile: SatCon Technology provides utility-grade power-conversion services for commercial and renewable-energy installations and distributed energy markets.

Share Price: $2.15 (June 27)

Stock Performance This Year: -52%

Analyst Consensus: Nine of 12 analysts covering SatCon Technology rate the stock a "buy," including those at Stifel Nicolaus, Cantor Fitzgerald and Piper Jaffray. The other three analysts rate the stock as a "hold." The average price target of $4.64 represents potential upside of 116% from current levels.

Bullish Case: ValuEngine issued a "buy" recommendation on SatCon on June 20, highlighting the company's "attractive market valuation, expected earnings per share growth, and 5-year annualized return." ValuEngine noted that the stock should be trading at $4.85 based on the firm's fair value model.

TheStreet Ratings has a "hold" rating on SatCon, having upgraded it from "sell" in February. The model highlights SatCon's "poor" profit margins and weak operating cash flow, while acknowledging strength in the company's revenue growth and "impressive" record of earnings per share growth.

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3. Abraxas Petroleum ( AXAS)

Company Profile: Abraxas Petroleum is an independent energy company, developing and producing oil and gas in the U.S. from the Rock Mountain, Permian Basin and Gulf Coast regions.

Share Price: $3.23 (June 27)

Stock Performance This Year: -29%

Analyst Consensus: Wall Street gives Abraxas strong marks, with nine analysts rating the stock a "buy," including those at Stifel Nicolaus and R.W. Baird. The only other firm following the stock, EVA Dimensions, has a "sell" rating on Abraxas. The average price target of $6.18 implies 91% upside potential.

Bullish Case: C.K. Cooper & Co. analyst Joel Musante upgraded shares of Abraxas to "buy" from "hold" on May 16, as the stock has fallen to an attractive level compared with his price target of $5.50. Musante notes that Abraxas may experience some challenges that negatively impact production growth, but he also highlights the company's oil development projects in the Bakken, Niobrara/Turner Sandstone in Wyoming and the Permian Basin of West Texas.

TheStreet Ratings has a "hold" on the stock, arguing that the company's "solid stock price performance, expanding profit margins and notable return on equity" are countered by "deteriorating net income, generally poor debt management and weak operating cash flow."


2. DryShips ( DRYS)

Company Profile: DryShips, based in Greece, is a dry-bulk transportation company. DryShips also owns ultra-deep-water drillships and oil-tanker vessels.

Share Price: $3.96 (June 27)

Stock Performance This Year: -28%

Analyst Consensus: DryShips garners a whopping 10 "buy" ratings from Wall Street analysts, including those at Sterne Agee, Wells Fargo Securities and Cantor Fitzgerald. Five other analysts say investors are better off holding on to shares, and two more have a "sell" rating on DryShips. The average price target of $5.93 implies nearly 50% upside from where the stock currently trades.

Bullish Case: In a June 27 research note, Sterne Agee analyst Salvatore Vitale wrote that DryShips' plan to list drilling contractor Ocean Rig on the Nasdaq this summer "will be acatalyst to unlock the value of the Ocean Rig business. Our valuation for DRYS is based on our sum-of-the-parts analysis, which yields a $6 price target."

On the other hand, TheStreet Ratings has a "sell" rating on DryShips, due to "disappointing historical performance in the stock itself and generally weak debt management."

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1. Sprint Nextel ( S)

Company Profile: Sprint Nextel offers a range of wireless and wireline communications products and for individual consumers, businesses, government subscribers and resellers. The company has been touting its 4G wireless network, which it claims has faster data speeds and better reliability than those of rivals AT&T ( T) and Verizon ( VZ).

Share Price: $5 (June 27)

Stock Performance This Year: 18%

Analyst Consensus: Sprint tops the list of stocks under $5 with the most "buy" ratings, at 14. Bullish firms include Piper Jaffray, JPMorgan, and Wells Fargo Securities. Another 13 firms have a "hold" rating on Sprint, while six analysts say investors should dump the stock. The average analyst price target of $5.50 implies potential upside of 10% from current levels.

Bullish Case: JPMorgan analyst Philip Cusick wrote in a June 22 research note that Sprint Nextel is "the stock in our universe with the largest potential upside due to its continued operational turnaround and opportunity to expand margins from the current industry-low level."

Cusick forecasts that Sprint won't see margin expansion until 2012 or 2013, but he says the company should be able to stabilize margins here given a stable top line. "We also expect solid cash flow generation, which should go to paying down debt or possibly further investment in the business or other strategic options," Cusick adds.

TheStreet Ratings rates Sprint a "sell," driven by a few notable weaknesses, including "generally weak debt management, disappointing return on equity and weak operating cash flow."

>>To see these stocks in action, visit the Stocks Under $5 With Most 'Buy' Ratings portfolio on Stockpickr.

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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