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.

Is Warren Buffett AIG-Proof?

Who needs six degrees of Kevin Bacon when you can play six degrees of AIG (NYSE: AIG) instead?

Since the witch hunt continues for anyone linked to the maligned insurer's money, isn't it really just a matter of time before public scrutiny begins to rain down on the companies that benefited the most from the $170 billion that AIG has received?

Here is where even Warren Buffett himself risks becoming an accidental tourist. Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) hands are completely clean, but his company's investment in Goldman Sachs (NYSE: GS) late last year places Buffett just two degrees of separation from the AIG fiasco.

AIG didn't just receive $170 billion in bailout money. The government lodged explosive dye packs into the stash, and now it's starting to blow up in the pockets of everyone who's holding it.

If retention bonus recipients are being vilified for being handed $165 million of the bailout funds in contractual back pats, how much longer will it be before the hounds start sniffing around Goldman Sachs? After all, AIG handed over nearly $13 billion of the now tainted bailout proceeds to Goldman Sachs to settle a score.

Yes, Goldman Sachs is loaded. It probably didn't need the $10 billion in TARP proceeds that it was talked into swallowing down back in October. It also probably didn't need the $5 billion it scored a month earlier in selling high-yielding preferred stock to Berkshire Hathaway a month earlier.

In fact, yesterday's New York Times is reporting that Goldman Sachs is now considering paying back its $10 billion in TARP funds within the next month. After watching companies like Citigroup (NYSE: C) and now JPMorgan Chase (NYSE: JPM) get crucified over corporate jet orders, and nearly every TARP recipient being scolded for executive compensation practices, one can't blame Goldman Sachs for getting out of dodge while the stagecoaches are still running.

However, Goldman's clearly not going to return the nearly $13 billion it got from AIG. It's money that rightfully belongs to Goldman Sachs, though one has to wonder how much of that it would have seen if the government had let AIG collapse under its own weight last year before deeming it too big to fail.

If no one sees that that is where the public anger is going to next, I'll draw you a map.

So, let's go back to Buffett. Berkshire Hathaway's investment in Goldman Sachs was practically bulletproof. Collecting 10% on "perpetual" preferred stock seems like a risk-free bet, as long as Goldman Sachs is still in business. However, it also scored warrants in the deal to snap up $5 billion of Goldman Sachs at $115 over the next few years. Goldman Sachs has to not only survive -- but thrive -- for that to be valuable.

So, Buffett is positioned to likely laugh all the way to the bank on this one, but Berkshire Hathaway will clearly have more money to lug to said bank if Goldman Sachs can keep the bloodthirsty mob away.

They're inching closer, though, so watch out.

Source from:http://www.fool.com/investing/general/2009/03/24/is-warren-buffett-aig-proof.aspx