Best-Performing Stocks Under $5 in 2011

BOSTON (TheStreet) -- Stocks under $5, such as TeamStaff (TSTF) and Majesco Entertainment (COOL), have more than doubled already this year even as most small-cap stocks have been brutalized by economic weakness and global debt woes.

Small-cap stocks have been the big winners during the two-year bull market that followed one of the worst worldwide recessions. Money managers argue that now is a time for investors to get defensive and move into less-risky asset classes like large-cap equities. On the other end of the capitalization spectrum, some small-cap stocks have seen outsized gains even as most have underperformed.

The Russell 2000 index -- a benchmark for small-cap stock performance -- is down 7.5% this year, worse than the 1% decline on the Dow Jones Industrial Average and 4.2% slide on the S&P 500 index. During times of economic weakness, small-cap stocks usually suffer sharper declines than their large-cap counterparts. With U.S. economic growth at a miniscule 0.4% in the first quarter and 1% in the second quarter, the Russell 2000's underperformance this year is not out of the ordinary.

Still, many inexpensive stocks have generated huge returns for lucky stock pickers, even as other low-priced shares like PMI Group ( PMI) and Motricity ( MOTR) plunged more than 60% in August alone.

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 eight months of 2011.


10. Sify Technologies ( SIFY)

Company Profile: Based in India, Sify Technologies is an Internet service provider.

Shares of Sify Technologies spiked higher in April to a high of $8.54 as a high-growth play for investors looking for exposure to India. The company this year has announced partnerships and plans for expansion, and the stock has rallied like fellow India Internet company Rediff.com ( REDF). Both Sify and Rediff.com have fallen steadily since the beginning of May along with the broader market.

Current Share Price: $4.48 (Aug. 30)

2011 Total Return: 98%

Analyst Ratings: No research analyst has coverage of Sify. TheStreet Ratings also does not have research on Sify.

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9. BioLase Technology ( BLTI)

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

Shares of BioLase hit a 52-week high of $6.78 in April, with the rally being sparked in 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. Since then, however, shares have pulled back below $4.

Current Share Price: $3.55 (Aug. 30)

2011 Total Return: 109%

Analyst Ratings: BioLase is rated "buy" by two research firms, which have an average price target of $7.39, according to Bloomberg. One other firm has a "sell" rating on the stock but no price target.

TheStreet Ratings has a "sell" ranking on BioLase, saying the company's biggest weakness has been "feeble growth in its earnings per share."


8. Flexible Solutions International ( FSI)

Company Profile: Flexible Solutions makes specialty chemicals that reduce water evaporation from lakes, ponds, reservoirs, commercial pools and swimming pools.

Shares of Flexible Solutions ramped higher in each month since April, hitting a 52-week high of $3.39 in July. In early April, the company said revenue rose 29% in the first quarter, which pushed the stock higher. The stock climbed higher again in May after Flexible Solutions announced full first-quarter results.

Current Share Price: $2.70 (Aug. 30)

2011 Total Return: 111%

Analyst Ratings: Only one firm, Taglich Brothers, follows Flexible Solutions, rating the stock as "neutral" with a $3.20 price target.

TheStreet Ratings recently upgraded Flexible Solutions to "buy" from "hold," calling attention to the company's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins." TheStreet Ratings has a price target of $3.53.

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7. TranS1 ( TSON)

Company Profile: TranS1 is a medical-device company that develops products for its proprietary minimally invasive surgical approach to treat degenerative disc disease and instability affecting the spine.

Shares of TranS1 surged in early January after the company disclosed that health-care company Humana ( HUM) changed its spinal surgery reimbursement policy to include coverage for medically necessary interbody fusion procedures when using TranS1's pre-sacral AxiaLIF approach. In June, TranS1 announced the 10,000th AxiaLIF surgery in the U.S.

Current Share Price: $4.51 (Aug. 30)

2011 Total Return: 117%

Analyst Ratings: Four research shops follow TranS1, and all four recommend that investors buy shares of the company. The average price target of $6.50 means that analysts still see significant upside to the stock.

TheStreet Ratings rates TranS1 a "sell," noting the company's "unimpressive growth in net income, disappointing return on equity and weak operating cash flow."


6. Hansen Medical ( HNSN)

Company Profile: Hansen Medical develops medical robotics designed for accurate positioning, manipulation and control of catheters and catheter-based technologies.

Shares of Hansen Medical jumped to a 52-week high of $5.28 in July, but the rally began in early February after Philips Electronics purchased the rights to develop and market Hansen Medical's Fiber Optic Shape Sensing and Localization, or FOSSL, technology for an upfront payment of $29 million. Hansen Medical is also eligible for $78 million in future payments.

Current Share Price: $3.30 (Aug. 30)

2011 Total Return: 121%

Analyst Ratings: JPMorgan and Lazard Capital analysts rate Hansen Medical as a "hold" while Piper Jaffray analysts say the stock is a "buy."

TheStreet Ratings rates Hansen Medical a "sell," calling special attention to the company's weak operating cash flow.

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5. Echo Therapeutics ( ECTE)

Company Profile: Echo Therapeutics is a medical device and pharmaceutical company that is developing a non-invasive, wireless, transdermal glucose monitoring system for use in clinical settings and for people with diabetes.

Shares of Echo Therapeutics were trading around $1.50 to start the year but doubled by the end of January after the company announced it received a $3 million funding commitment from its largest shareholder, Platinum Montaur Life Sciences. The company also announced that it has raised $2.5 million through a series of private placements of stock and warrants. Echo CEO Patrick Mooney said in January that the deals provided sufficient funds to substantially complete product development, clinical studies and manufacturing of both the company's skin permeation platform technology and its needle-free continuous glucose monitoring system.

Current Share Price: $3.70 (Aug. 30)

2011 Total Return: 131%

Analyst Ratings: Echo Therapeutics garners six "buy" ratings from Wall Street research firms, including JMP Securities and Stifel Nicolaus. The average price target of $6.33 represents potential upside of 71%.

TheStreet Ratings rates Echo Therapeutics a "sell," calling attention to the company's "deteriorating net income, disappointing return on equity and feeble growth in its earnings per share."


4. Interphase ( INPH)

Company Profile: Interphase is a telecom-equipment maker. The company provides services for LTE and WiMAX, interworking gateways, packet processing, network connectivity, and security for key applications for the communications and enterprise markets.

Interphase shares more than doubled on Feb. 11, a day after the company reported fourth-quarter financial results. The company said revenue in the quarter jumped 24% to $5.8 million as it swung to a quarterly profit. The stock hit a high of $7.59 in March but has been steadily pulling back since.

Current Share Price: $4.60 (Aug. 30)

2011 Total Return: 155%

Analyst Ratings: There are no research firms covering Interphase currently.

TheStreet Ratings has a "sell" rating on the stock, which it has maintained since downgrading the stock from "hold" in July 2009. The latest report says Interphase's primary weakness is "feeble growth in its earnings per share."

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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-rights extension.

Current Share Price: $3.11 (Aug. 30)

2011 Total Return: 214%

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 limp profit margins.


2. Majesco Entertainment ( COOL)

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

Majesco's run this year started in January when the company announced it had shipped more than 500,000 copies of its Zumba Fitness video game for the Wii, Xbox 360 and PlayStation 3. Later that month, the company announced 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. In June, Majesco upped its full-year revenue outlook as it expects to ship 17 new games this year across platforms like the Xbox Kinect, Facebook, Nintendo's 3DS and Apple's iPhone.

Current Share Price: $2.60 (Aug. 30)

2011 Total Return: 237%

Analyst Ratings: Majesco garners two "buy" ratings from Needham & Co. and Sidoti & Co. Majesco also receives a "neutral" rating from Wedbush. Needham analysts have a $5 price target on the stock while Wedbush has a $4 target.

TheStreet Ratings has a "hold" recommendation on Majesco Entertainment. The research report says robust revenue growth, a largely solid financial position with reasonable debt levels and return on equity are strengths that are countered by the company's weak profit margins.

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1. TeamStaff ( TSTF)

Company Profile: TeamStaff is a staffing provider specializing in health-care, logistical, information-technology and office administration personnel.

Shares of TeamStaff initially popped in May after the company was chosen as the single source for integrated medical support for the Department of Veterans Affairs' Consolidated Mail Outpatient Pharmacy program, an award that carries a total maximum value of $140 million. The company has also been awarded other contracts, including the Navy SeaPort-e "prime" contract in July, which allows TeamStaff access to bid on $5.3 billion of services via task orders issued under the SeaPort-e program.

Current Share Price: $1.91 (Aug. 30)

2011 Total Return: 275%

Analyst Ratings: No Wall Street research analysts follow TeamStaff.

TheStreet Ratings has a "sell" rating on TeamStaff, noting the company's "disappointing return on equity and poor profit margins."

-- 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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