Are you dare to buy stocks under $5?

Are you dare to buy stocks under $5? There remains a slew of higher profile companies that trade under $5 a share although the market seems to have rebounded from its lows. This can be a major concern for these companies because many analysts and institutions are often hesitant to get involved by recommending or buying the shares of companies that trade below the $5 mark.

Sometimes there is opportunity to be had with an under $5 stock. When a company's share price moves above $5 it often catches the attention of analysts and institutions and the shares can move higher. The other big benefit of a low-priced stock is that a retail investor can generally purchase more shares, and if the stock price goes up, it can turn into a significant gain.

With all that in mind I recently ran a screen for sub $5 stocks that also trade under book value and under 10 times the current year estimate. The resulting list could be a good starting point for further research.
Apollo Investment Corporation
The New York based closed end investment company has seen its shares decline more than 70% over the last 52 weeks. Of course, it's not the only company that's taking such a beating, but at under $5 a share I think the stock looks pretty compelling.

Trading at Low Book Value
First and foremost, let's look at valuation. Data indicates that the company trades at .47 times book value. Though trading at a low multiple of book value is no guarantee of success, I like to think that this could mean that the downside may be somewhat limited. Also, the data indicates it trades at a little bit over three times the current year estimate. In fact, data shows that the company is expected to earn $1.47 a share in the current year (ending March 2009) and $1.40 per share in the year ending March 2010. That is also a head turner given that the shares trade south of $5. (For more, see Investment Valuation Ratios.)

Promising Outlook
I think that if the company hits expectations when it releases its Q4 numbers, investors may take notice and send the shares higher. If that happens, I think we will also start to see the sell side warm to the story.

It's also important to note that data indicates that three different insiders bought a total of 40,000 shares (combined) since the latter part of last year. I don't think that the execs would have made these types of purchases unless they thought the shares had some decent upside.

I am hoping that upbeat earnings from other big name financial names could buoy the stock. Note that Goldman Sachs (NYSE:GS) was out with better-than-expected first-quarter earnings after the close on April 13. Hopefully, this could boost interest in financial type companies across the board.

Bottom Line
Just because a stock is trading south of $5 doesn't mean it'll be stuck there forever. One stock under $5 that I think deserves a look is AINV. When examining its valuation and outlook, I think this company is worthy of investor attention.