5 stock jewels for around $5 or less

By Michael Brush

Stocks under $5 fall off the radar screens of many big investors because a lot of mutual fund companies ban them altogether -- for fear of the risks involved.

But that's what makes under-$5 stocks good targets for portfolio-boosting gains, if you aren't a slave to the same constraints. Often, stocks under $5 are overlooked gems that come roaring back because of an attention-grabbing turnaround, a profit surprise or some other break. When this happens, the pros notice and drive these stocks up considerably.

A good way to find potential winners in this end of the market is to look for companies with healthy insider buying. That's the case with four of the five promising stocks trading for around $5 or for less that I dug up recently: Xanser (XNR, news, msgs), Javelin Pharmaceuticals (JAV, news, msgs), Insightful (IFUL, news, msgs) and Oilsands Quest (BQI, news, msgs). A fifth, Crown Media Holdings (CRWN, news, msgs), comes from an analyst who has proved his worth in my columns before.

Here's a closer look.

Xanser: A potential gusher

If you manage an oil refinery or a chemical plant and you have a leaky pipe, the plumber you call is Xanser. The company's Furmanite Worldwide division has been plugging leaky pipes and valves for decades. Xanser technicians repair systems with contents under high pressure or at extreme temperatures. Jobs often call for the design of custom tools, and Furmanite has about 130 patents and trademarks on its various tricks of the trade.

Sales growth for 2004 and 2005 came in at 11% and 17%, but in 2006 revenue got a jolt -- increasing 58% -- because Xanser purchased a competitor called General Services Group.

One insider at the company appears to have little doubt the acquisition will be a big success. Director Charles Cox purchased more than $1.1 million worth of stock at $4.80 to $5.63 a share between last September and early January.

Two big-picture trends favor this company. I believe energy prices will rebound due to colder weather in the U.S. and to heightened tensions in the Middle East as the U.S. tangles with Iran over the country's nuclear program and its alleged support for Iraqi dissidents. Refineries will be working overtime. Meanwhile, continued economic strength around the world will support demand for energy, steel, electricity and basic chemicals -- putting a strain on plants whose pipes will be springing more leaks.

Javelin: New uses for old drugs

Javelin Pharmaceuticals wants to take some of the pain out of investing in drug development companies. Because it focuses on finding new applications for existing drugs with established safety records, Javelin is less likely to blow up like biotech companies that come up short in the hunt for a breakthrough discovery.

"We take proven drugs and develop improved formulations and delivery systems," says Chief Executive Daniel Carr. By focusing on pain-relief drugs, Javelin is aiming for a piece of a $30 billion market.

Mind you, there's still risk. Javelin's new spin on old drugs could get rejected by drug regulators. But at least one of the company's three chief pain-relief drugs should hit the market this year. In the last two months of 2006, insiders purchased more than $800,000 worth of the stock for prices between $3.31 and $4.10, according to InsiderScore.com.

Potential sales could reach $1 billion in four or five years, says Carr. If he's right, the stock of this $200 million market cap company could advance five times or more. Rodman & Renshaw analyst Elemer Piros has a 12-month price target of $8.

Insightful: The numbers game

When geeks want to crunch numbers, they turn to software provided by Insightful. The Seattle company produces the Rolls-Royce of statistical software, known as S-PLUS. "We help companies make better decisions and make them faster," says Insightful finance chief Richard Barber.S-PLUS powers crystal balls at businesses ranging from Big Pharma to Barclays Global Investors, which runs one of the world's largest quantitative-analysis shops.

Here's my prediction based on recent insider buying: The stock is headed up over the next few years. Since last May, director Samuel Meshberg has purchased more than $1 million worth of Insightful shares at $2.21 to $3.15 a share, according to Thomson Financial.

Number crunchers can get a basic, open-source statistical program called "R" for free on the Internet. But Insightful offers powerful processing software that's so good it becomes an integral part of the decision-making at big companies. Insightful hopes to play on its strengths in pharmaceutical and biotech apps to take share from its much larger competitor, SAS Institute.

General industry growth should help, too. "Companies still do not make use of the vast amounts of data they collect," says Barber. "Predictive analytics is a growing industry." Meanwhile, the company looks financially sound, with no debt and about 60 cents a share in cash. Insightful stock recently traded for about $2.40 a share.

Crown Media Holdings: Ending the drama

The past 18 months at Crown Media Holdings, a subsidiary of Hallmark Entertainment Holdings, have packed more emotional drama than a made-for-cable miniseries. Since the summer of 2005, the cable content provider has put itself up for sale, taken itself off the market, surprised shareholders with a big write-down of a film library, sold that library for a price critics say was too low and brought in a new chief executive in a management shake-up.

All the while, rumors of bankruptcy have swirled around the company. The drama has left long-term shareholders aching for the soothing tones of a family-oriented Hallmark Channel movie. They're down 63% since August 2005, when the company first announced it was up for sale. That news sent the stock to highs not seen for years, or $11. The stock recently sold for $3.90.

Shareholders may soon be getting some comfort. New CEO Henry Schleiff has a good track record, boosting the subscriber base at Court TV from 30 million to 85 million in the seven years he was the chief there, ending when Court TV was sold to Time Warner (TWX, news, msgs) last year.

Crown's Hallmark Channel is a top-10 cable property for both the day and prime-time slots. Subscribers grew by 8% in the third quarter, to 74.7 million, and advertising revenue was up 20%. Revenue was up 16% if you ignore a one-time gain in the same quarter the year before. And cable distribution agreements are expiring, so Schleiff hopes to command higher rates going forward.

But the brass ring for shareholders may still come in the form of an outright sale of Crown Media. Schleiff tells me he's not shopping the company around. But in a Jan. 3 note, Rob Routh of Jefferies & Co. speculated that Liberty Media (LINTA, news, msgs), already a big shareholder, could be a buyer.

As for the potential bankruptcy, Hallmark Cards is a major Crown shareholder with 53 million shares, or 71% of the float. So it's not likely to let Crown go under.

Oilsands Quest

Question: When the Canadian government draws a boundary separating two provinces, could that possibly have an impact on the underlying geology? I'd say no. One stock's price, though, is acting as if the answer is yes.

The company, called Oilsands Quest, controls 508,000 acres of land in Saskatchewan that could be rich in tar sands, just like neighboring Alberta. The discovery and exploitation of Alberta tar sands, which are being mined for conversion into oil, has added billions of dollars in market cap to many energy companies, including Suncor Energy (SU, news, msgs). Yet Oilsands Quest trades for a fairly small market cap of $732 million, even though a good portion of its holdings are just 25 miles from a successful Suncor tar sands project known as Firebag.

Investors are holding back because the potential for Saskatchewan tar sands is still unproven, even though the same McMurray formation which holds the Alberta tar sands lopes through Saskatchewan. Oilsands Quest insiders have placed their own convincing bet, one that's big enough to follow. Last summer they bought a $2.4 million of the company's stock for an average price just below $5.

A final warning

If you are new to the market, you can buy under $5 stocks by shopping for an online brokerage that charges commissions of $10 or less -- to keep costs down.

Just remember some basic rules:

• Don't put more than 5% of your stock portfolio into any stock, including these.

• Plan to hold for at least a year or two, for the stories to develop.

• Don't buy these stocks if this column drives up their prices by more than 5%. Wait for a pullback.

Expert Picks

With this column, I'll add Xanser, Javelin Pharmaceuticals, Oilsands Quest and Crown Media Holdings to the Company Focus tracking portfolio in our Expert Picks section, and we'll see how they do from here.

At the time of publication, Michael Brush did not own or control shares of companies mentioned in this column.