10 Best-Performing Stocks Under $5 in 2011

BOSTON (TheStreet) -- Small-cap stocks are set to close out 2011 with big losses, but some companies trading under $5, such as TeamStaff (TSTF) and Majesco Entertainment (COOL), have more than tripled.

After a two-year bull market that followed the 2008 financial crisis, small-caps have been brutalized. The Russell 2000 index, a measure of share performance for smaller companies, is down more than 14% since the end of April. Investors have become more risk-averse and have sought safety in dividend-paying, large-cap stocks, U.S. Treasury bonds and even cash.

The flight to safety has been torrential, especially as the debt crisis in Europe worsens. Overall, the Russell 2000 index has dropped 6% this year, while the S&P 500, which holds the companies with the largest market values, is down a fraction of a percent. At the same time, the yield on the 10-year U.S. Treasury has dwindled from 3.3% to 2%. Gold has also been a hideout for investors. The precious metal has jumped from about $1,400 an ounce at the end of 2010 to above $1,700 an ounce.

Still, many inexpensive stocks have generated huge returns for lucky stock pickers. In November, amid fears the entire eurozone region would crumble under the weight of its debt, stocks like Pacific Ethanol ( PEIX) and Spanish Broadcasting System ( SBSA) more than doubled.

But given the volatility in the equity market, investors must be careful in searching out small-cap stocks worth the risk, as fortunes can be lost with one bad trade. For example, American Airlines parent AMR Corp. ( AMR) dropped more than 87% last month on its bankruptcy announcement, while FiberTower ( FTWR) and Delta Petroleum ( DPTR) each sank 70%.

Some small-cap winners have doubled and, in some cases, tripled and quadrupled this year. 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 in 2011.


10. Crescent Financial ( CRFN)

Company Profile: Crescent Financial, the parent of Crescent State Bank, operates 15 full-service banking offices North Carolina with $916 million in total assets.

Shares of Crescent Financial doubled in one day in late February after Piedmont Community Bank Holdings paid $75 million to acquire a 66% stake in Crescent. In November, after extending its tender offer for shares, Piedmont completed its investment in Crescent.

Share Price: $4.45 (Dec. 2)

2011 Total Return: 98%

Analyst Ratings: All three researchers following Crescent Financial recommend that investors hold onto shares, including research shop Raymond James. There are currently no price targets from analysts on Crescent shares.

TheStreet Ratings has a "sell" rating on Crescent Financial, citing unimpressive growth in net income and poor profit margins.

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9. Saratoga Resources ( SARA)

Company Profile: Saratoga Resources is an independent exploration and production company, with acreage along the transitional coastline of Louisiana.

Last year, Saratoga Resources emerged from bankruptcy protection with debt obligations restructured to reduce the interest burden on the company. The company was successful in preserving 100% of the interests of shareholders. It paid creditors 100 cents on the dollar and extended the maturity on then existing credit facilities to April 2012.

The stock, which was added to the NYSE Amex in July, after Saratoga refinanced prior debt facilities, reduced total debt, raised over $35 million in new equity, and increased cash by 400%.

Share Price: $4.60 (Dec. 2)

2011 Total Return: 100%

Analyst Ratings: The three research analysts following Saratoga Resources all suggest that investors buy the stock. The average of two price targets is $8, nearly double the stock's current price. TheStreet Ratings also does not follow the stock.


8. Analysts International ( ANLY)

Company Profile: Analysts International is an IT services staffing firm.

Shares of Analysts International popped in late February after the company reassured investors by saying it expects to maintain profitability in fiscal 2011. Shares dipped in May after the company's chief financial officer resigned, shares climbed to a 52-week high in November on the back of the company's third-quarter financial results, which saw revenue up 11% from a year ago and net income up sharply to $1.8 million from only $600,000 in the third quarter of 2010.

Share Price: $4.92 (Dec. 2)

2011 Total Return: 100%

Analyst Ratings: Despite the name, no research analyst follows Analysts International.

TheStreet Ratings has a "buy" rating on Analysts International after upgrading the stock in November. The company's low profit margins are counterbalanced by "its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures."

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7. Flex Solutions International ( FSI)

Company Profile: Flexible Solutions makes specialty chemicals that reduce water evaporation from lakes, reservoirs 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.

Share Price: $2.69 (Dec. 2)

2011 Total Return: 108%

Analyst Ratings: Of the two firms following Flex Solutiosn, Taglich Brothers rates the stock as "neutral" with a $3.20 price target while Sidoti & Co. has a "buy" rating on shares.

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." However, the company has weak operating cash flow and disappointing return on equity, the report says.


6. ParkerVision ( PRKR)

Company Profile: ParkerVision develops RF technologies that have low power consumption for 2G, 3G and 4G wireless communications.

Shares of ParkerVision surged in July after the company announced it is suing mobile chipmaker Qualcomm ( QCOM) for patent infringement. The complaint accuses Qualcomm of "objective recklessness in its infringing activity and seeks an award of exemplary damages, attorneys' fees, and costs in bringing this action."

Share Price: $1 (Dec. 2)

2011 Total Return: 120%

Analyst Ratings: No research analyst follows ParkerVision.

TheStreet Ratings gives ParkerVision a "sell" based on "generally disappointing historical performance in the stock itself and poor profit margins."

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5. Vical ( VICL)

Company Profile: Vical develops gene-based treatments for cancer and infectious disease vaccines using DNA technology and proprietary lipids.

Vical's stock has had an up-and-down 2011, beginning the year at $2 before spiking above $5 in July after the company signed an exclusive license contract with Astrellas Pharma for the commercialization of TransVax, Vical's therapeutic vaccine designed to control cytomegalovirus reactivation in transplant recipients. By October, shares of Vical slipped below $3 before jumping back above $4 in November after the company reported third-quarter earnings results, which included $25 million in licensing revenue fro TransVax.

Share Price: $4.59 (Dec. 2)

2011 Total Return: 127%

Analyst Ratings: Vical has the most coverage of any stock on the list with nine analysts following the company. Six say the stock is a "buy" while the other three suggest that investors hold onto shares. The average price target of $7.20 is about 57% above current levels.

TheStreet Ratings has a "hold" rating on Vical, noting that the company's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance" is counterbalanced by disappointing return on equity.


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.

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.

Share Price: $4.59 (Dec. 2)

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. Adolor Corp. ( ADLR)

Company Profile: Adolor develops new products and delivers advanced pain and pain-management therapies.

Adolor wouldn't make the list of best-performing stocks under $5 this year if it weren't for a takeover bid in October from Cubist Pharmaceuticals ( CBST), which will buy the company in a $415 million deal.

Share Price: $4.69 (Dec. 2)

2011 Total Return: 287%

Analyst Ratings: As Adolor is an acquisition waiting to happen, the analysts following the stock are split over what investors should do. Three say the stock is still a "buy" while the other two researchers following Adolor say investors should hold onto shares.

TheStreet Ratings has a "sell" rating on Adolor shares, saying that "the company's primary weakness has been its disappointing return on equity."


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.

Share Price: $3.10 (Dec. 2)

2011 Total Return: 303%

Analyst Ratings: Majesco garners three "buy" ratings from Needham & Co., Northland Securities and Sidoti & Co. Majesco also receives a "neutral" rating from Wedbush. The average price target of $4.42 is 42% above current levels.

TheStreet Ratings has a "buy" recommendation on Majesco Entertainment after upgrading the stock in October. While TheStreet Ratings says the company has some minor weaknesses, the report lauds the company's "robust revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, solid stock price performance and impressive record of earnings per share growth."

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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.

Share Price: $2.09 (Dec. 2)

2011 Total Return: 310%

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, weak operating cash flow and poor profit margins."

>>To see these stocks in action, visit the 10 Best-Performing Stocks Under $5 in 2011 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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