10 Stocks Under $5 Outperforming in 2012

BOSTON (TheStreet) -- Whether you think of it as "risk on" or the "dash for trash," several penny stocks are soaring after only a month since the new year started. Under $5 stocks such as Energy Conversion Devices (ENER) and Rosetta Genomics (ROSG) have more than doubled already this year.

After underperforming in 2011, small-cap stocks are outperforming the broader market so far this year. The Russell 2000 index, a measure of share performance for smaller companies, dropped more than 5% last year but has risen 6.6% in January. By comparison, the S&P 500 index of the largest U.S. companies was flat in 2011 and is trailing the Russell 2000 in 2012 with a gain of 3.4%.

There are a few explanations why riskier assets have led the market. The most obvious is the phenomenon known as the so-called January Effect, where small-cap stocks tend to outperform the broader market in the first month of the year. That's when investors who sold out of positions at the end of 2011 recognize a capital loss for tax reasons and reinvest in those small-cap names once the calendar flips over.

Another explanation is the reversal of the flight-to-safety trend witnessed in late 2011, which was largely prompted by the European debt crisis. Investors became highly risk-averse on fears of another global economic recession due to the spreading debt contagion, which forced many into safe havens like dividend-paying, large-cap stocks, U.S. Treasuries and cash.

But with bank stocks and other financial shares among the top performers in 2012, investors are dubbing the recent surge in equity prices the "dash for trash." Bespoke Investment Group noted earlier this month that the biggest losers in 2011 are among the top performers this year. Those gains are coming in the shadow of the continuing debt crisis in Europe, with Greece working frantically with creditors to avoid a default.

Still, many inexpensive stocks have generated huge returns for lucky stock pickers, whether the run higher is justified or not. 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 only one bad trade. For example, stocks like Columbia Laboratories ( CBRX) and Sgoco Group ( SGOC) have each sank more 40% in January.

Some small-cap winners have doubled and, in one case, quadrupled already this year. The following pages detail the best-performing stocks under $5 in January on the New York Stock Exchange, Nasdaq and NYSE Amex, ranked by total return in 2012.


10. China Sunergy ( CSUN)

Company Profile: Headquartered in China, China Sunergy manufactures solar cell and module products for the photo-voltaic (PV) industry.

Like most solar stocks, China Sunergy has surged in 2012 after getting brutalized last year. Other names like Hanwha Solarone ( HSOL), SunPower ( SPWR), and Trina Solar ( TSL) have rallied between 30% and 90% in January. Bloomberg noted over the weekend that solar panel manufacturers expect installations to double this year and for more consolidation in the industry.

Share Price: $2.39 (Jan. 27)

2012 Total Return: 113%

Analyst Ratings: Collins Stewart is the only research firm with a recent research report out on China Sunergy, rating the stock "neutral" on Jan. 5 with a price target of $1. TheStreet Ratings rates China Sunergy as a "sell."

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9. China Armco Metals ( CNAM)

Company Profile: China Armco Metals is involved in the sale and distribution of recycled scrap metals and metal and nonferrous metal ores to China's steel production industry.

The penny stock has more than doubled this month after the company disclosed on Jan. 5 that it had new contracts valued at more than $5.6 million. At the time, China Armco's Chairman and CEO said the company is "cautiously optimistic about the strengthening of our businesses as China's economic conditions improve and its monetary policies are relaxed."

Share Price: 61 cents (Jan. 27)

2012 Total Return: 116%

Analyst Ratings: There are currently no Wall Street analysts following China Armco Metals. TheStreet Ratings has a "sell" rating on China Armco Metals currently.


8. Westinghouse Solar ( WEST)

Company Profile: Westinghouse Solar manufactures, distributes and markets solar power systems for generating renewable electricity.

As mentioned above, solar stocks have been on a tear early into 2012. The biggest bump for Westinghouse shares came on Jan. 4 after the company announced an investment from CBD Energy, an Australian renewable energy company. CBD Energy invested $1 million to buy common stock at 60 cents a share, above the previous day's share price of only 37 cents.

Share Price: 70 cents (Jan. 27)

2012 Total Return: 118%

Analyst Ratings: The most recent analyst report on Westinghouse came in November, when Cantor Fitzgerald said it was maintaining its "hold" rating on the stock with a $1.25 price target. No other research shop has rated the stock in the past six months. TheStreet Ratings has a "sell" rating on Westinghouse Solar.

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7. Enova Systems ( ENA)

Company Profile: Enova Systems produces electric, hybrid electric and fuel cell systems.

While solar stocks have rallied sharply, that's not the reason Enova Systems has more than doubled in share price this year. Instead, the stock was flat for January until last week, when the company announced it will supply drive systems to China's First Auto Works.

Share Price: 38 cents (Jan. 27)

2012 Total Return: 129%

Analyst Ratings: No Wall Street research shop currently covers Enova Systems. TheStreet Ratings has a "sell" rating on Enova Systems.


6. IFM Investments Limited ( CTC)

Company Profile: IFM Investments is a China-based real estate company with franchise agreements to sell property under the Century 21 brand.

IFM Investments has had a rough road since the company went public in early 2010 and traded for roughly $7. The stock traded around 30 cents for most of January before taking off on Jan. 25. There's nothing to explain this sharp rally higher, as the company's last official news release came on Jan. 9 when it said a shareholder petition to wind up the company has no basis and that the company will "vigorously contest" the petition.

Share Price: 69 cents (Jan. 27)

2012 Total Return: 130%

Analyst Ratings: Five research shops have come out with reports on IFM in the past six months, with three recommending the stock as a "hold" or "neutral," including Goldman Sachs. Meanwhile, Oppenheimer has an "outperform" rating on the stock, while EVA Dimensions says investors should sell shares. TheStreet Ratings has a "sell" rating on IFM Investments.

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5. China CGame ( CCGM)

Company Profile: China CGame, formerly known as China Architectural Engineering, provides massively multiplayer online role-playing games, or MMORPGs, in China.

China CGame is another Chinese stock that saw a breakout on Jan. 24, more than doubling in value without any easily identifiable catalyst.

Share Price: 40 cents (Jan. 27)

2012 Total Return: 135%

Analyst Ratings: No analyst currently follows China CGame. TheStreet Ratings has a "sell" rating on China CGame.


4. Rosetta Genomics ( ROSG)

Company Profile: Israel-based Rosetta Genomics is a microRNA genomics company, focused on developing bioinformatics tools for miRNA gene detection.

Shares of Rosetta Genomics held around 25 cents for most of January before jumping close to 70 cents on Jan. 26, a day before the company announced debt financing of $1.75 million.

Share Price: 44 cents (Jan. 27)

2012 Total Return: 144%

Analyst Ratings: The last (and only) rating still on Rosetta Genomics came in November when Rodman & Renshaw maintained its "market perform" ranking. The firm, however, does not have a price target on the stock. TheStreet Ratings has a "sell" rating on Rosetta.

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3. BioDelivery Sciences International ( BDSI)

Company Profile: BioDelivery Sciences is a specialty pharmaceutical company focused on pain management and oncology supportive care.

Shares of BioDelivery surged on Jan. 6 after the company struck a licensing and development deal with Endo Pharmaceuticals ( ENDP). Endo said it will pay up to $180 million, plus royalties, to BioDelivery Sciences one of the company's pain treatments.

Share Price: $2.08 (Jan. 27)

2012 Total Return: 158%

Analyst Ratings: Following the announcement of the deal with Endo, Roth Capital, Ladenburg Thalmann and William Blair each came out reiterating "buy" ratings on the stock. The average of the three research firms' price target is $4.67, more than double where the stock currently trades. TheStreet Ratings has a "sell" rating on BioDelivery Sciences.


2. EntreMed ( ENMD)

Company Profile: EntreMed is a pharmaceutical company that is looking to develop and commercialize drugs for the treatment of cancer and inflammatory diseases.

Shares of EntreMed rose last Monday after the company announced it secured $10 million in financing. Later in the week, EntreMed rallied sharply after stakeholder Celgene ( CELG) announced it would acquire cancer drug maker Avila Therapeutics, which also develops kinase inhibitors.

Share Price: $2.60 (Jan. 27)

2012 Total Return: 173%

Analyst Ratings: No Wall Street firm currently has coverage of EntreMed. TheStreet Ratings has a "sell" rating on EntreMed.

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1. Energy Conversion Devices ( ENER)

Company Profile: Energy Conversion Devices develops thin-film laminates for use in integrated solar-based energy solutions.

Energy Conversion Devices shares have rallied almost 500% this month after a terrible 2011. In November, the company announced it was suspending production as it worked its way through inventory. The stock popped sharply higher this month after the company made an interest payment on its debt after previously deferring on the payment.

Share Price: $1.21 (Jan. 27)

2012 Total Return: 499%

Analyst Ratings: Four research firms released reports on Energy Conversion Devices in the past six months, with one analyst at Credit Suisse recommending in August that investors hold onto shares. The other three -- Craig-Hallum, Ardour Capital and Simmons & Co. -- recommend that investors sell their shares. TheStreet Ratings also has a "sell" rating on the stock.

>>To see these stocks in action, visit the 10 Stocks Under $5 Outperforming in 2012 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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