3 Stock "Buys" With Single-Digit Prices

A stock's price -- with no other information -- should mean nothing to investors. It doesn't necessarily reflect a company's size; Citigroup sells for less than $5 a share and yet is the 18th-largest U.S. company by market value because it has so many shares outstanding. Nor does a low price signal a modest valuation. InfoSpace ( INSP: 8.26, -0.02, -0.24% ) , an internet search specialist, sells for just over $8 per share, but that's more than 50 times its projected 2011 earnings per share, making it three times as expensive as the average U.S. stock.

Yet, although a stock's price proves little on its own, a 2006 analysis of 81 years of trading data found that stocks priced below $5 a share beat more expensive stocks (above $20 a share) by more than 0.8 percentage points per month, or 10 percentage points a year. Results for a data set that dates back only to the 1960s, but incorporates more companies, showed a smaller, but still significant difference: Low-priced stocks returned about 0.5 percentage points more per month than high-priced stocks. Perhaps that's why companies seem eager to split their shares when the opportunity arises, and why the average stock price hasn't changed much since the Great Depression, even though consumer prices since then have multiplied more than tenfold.

Below are listed three U.S. stocks with single-digit prices and glowing recommendations, on average, from the analysts who cover them. "Buy" recommendations don't necessarily predict good returns, studies show, but recommendation upgrades do. Opinions on these shares have turned sweeter over the past eight weeks. (more)