4 Stocks That Should Quadruple Soon
By Rick Aristotle Munarriz November 2, 2007
If you've always wanted to buy Sun Microsystems (Nasdaq: JAVA) in the single digits, your days are numbered. Shareholders of the server giant will be asked to approve a 1-for-4 reverse stock split next week, catapulting its shares into the low $20s.
There's no free lunch, of course. A stock split -- either forward or reverse -- is a zero-sum game. Who cares if you have four shares of Sun at $6 or just one share at $24?
I'm the last person to usually rally around reverse splits, but I see the logic here. Sun has seen its shares stuck in the single digits for more than five years now. It's starting to get its act together, posting three strong quarters. However, with 3.6 billion shares outstanding, it's like tossing M&Ms into the Grand Canyon. The profits are amounting to just a few pennies on a per-share basis. Meanwhile, investors who are afraid of buying a low-priced stock are missing out on a company that has really turned the corner lately.
A reverse split is a humbling move. Sun's pedigree as a great tech stock will take a hit. After all, Sun has gone through six 2-for-1 stock splits since going public 21 years ago. But just because this is a reverse split doesn't mean the company is taking a step back.
I see other stocks meandering in the single digits that could use a reverse stock split of their own. Again, a reverse split isn't a catalyst. Fundamentals need to be what ultimately win fans back. However, if penny stock stigma is keeping investors away, a reverse split works if the company's future is brighter than its recent past. There's also the employee recruitment allure of a company whose stock doesn't appear to be stuck in the mud. Especially with tech companies where stock options are a major part of any executive compensation package, penny stock recruiters have it tough out there.
Here are a few companies I think should follow Sun's lead and take the reverse stock split walk of shame.
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