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A Penny for Your Stocks


When good shares go bad.


Nickel stocks now represent about 10% of the S&P 500. And thanks to the wonders of capitalism, it looks like their number will continue to grow.

Nickel stocks, or stocks trading below $5 a share, are the upscale cousins of penny stocks, or shares trading at less than a buck.

Once upon a time, nickel stocks might have looked like a buying opportunity. But with the possibility of some stocks going to about 0, who wants to risk the change needed for a cup of coffee?

In a bow to reality, the New York Stock Exchange suspended until June 30 its $1 minimum price requirement to remain listed on the Big Board. This may help preserve the image of battered stocks, but it won't do anything to improve their immediate prospects.

Keep an eye out for reverse stock-splits - a maneuver that boosts share price by reducing the number of shares outstanding. But remember that reverse splits don't do anything to increase the value of your investment; 500 shares of a company trading at $1 is the same as 100 shares trading at $5 each - the result of a 1-for-5 reverse split.

Much has been written about how once-formidable companies -- such as General Motors (GM), American International Group (AIG) and Citigroup (C) -- are close to penny-stock territory, or have fallen into it. But nickel stocks have been generally overlooked. This is surprising because the number of nickel stocks included in the S&P 500 has nearly doubled to about 50 from about 27 in November.

This can be negative feedback because many mutual funds avoid stocks that trade below $5. A weak stock shunned by institutional investors can become weaker, and this appears to be happening to a number of widely-held stocks.

How about an American automaker that's rejected federal handouts in an effort to remain free of the heavy hand of Congress in the future? Great idea -- good cars, too -- and Ford (F) can be yours for about $1.70 a share - a stunner for a Fortune 500 company.

Airline stocks were pounded by record-high fuel prices last summer and are now flying increasing numbers of empty seats as business and leisure travelers cut back. Delta Air Lines (DAL) is a top-notch company, and you can add it to your portfolio for about $4.06 a share.

Wendy's (WEN) is the nation's third-largest hamburger chain, trailing McDonald's (MCD) and Burger King (BKC). Combining Wendy's with Arby's, another also-ran in the fast food industry, may not do much for your cholesterol level (or portfolio), but Wendy's/Arby's Group can be yours for about $4.10 a share. Meanwhile, McDonald's recently fetched $52.12 a share, and Burger King traded at $21.43.

3Com (COMS) makes the gismos that bring the Internet to life -- routers, switches, gateways -- and also provides technical support, consulting and systems integration. Tech stocks were once sure winners. It looks like this Internet thing is going to work, but 3Com's stock recently changed hands at $2.10 a share.

If you've about had it with US banks, feel free to look overseas in search of frustration. Barclays (BCS) -- the British behemoth with about 1,700 branches in the United Kingdom and another 2,000 in Europe, Asia, Africa and the US -- recently fetched $3.20 a share.

But cheer up. Citigroup recently rose a penny - a 0.98% gain. With stunning gains like that, who needs dividends?

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No positions in stocks mentioned.
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