Tech Stocks Below $10 May See Few ‘Home Runs,’ Report Says

Technology stocks that fall below $10 a share have little chance of getting back above $15 in any near-term recovery, a new Merrill Lynch & Co. report says.

The report was based on an analysis of the annual performance of 1,900 technology stocks in all, dating to 1987.

Merrill analysts Thomas W. Watts and Christopher M. Giordano found that, of companies with single-digit stocks in any year, an average of just 3.4% saw their share price rebound to $15 or higher by the end of the year after they fell into single digits.

“The $15 mark may be a high hurdle, representing a minimum 50% appreciation,” Watts wrote. “However, it highlights the sort of home runs many investors seek when investing in single-digit stocks.”

Of the 63 tech stocks that fell below $10 in 1987, only three rose above $15 in the following year, the study said. Of the 371 single-digit tech shares of 1998, 20 were above $15 in the following year.

Scores of tech shares--mostly Internet-related--have fallen to single-digit territory in the last few months as the industry’s woes have deepened.

A Times story Wednesday noted that even some tech powerhouses, such as Cisco Systems, Oracle and Sun Microsystems, now are approaching the $10 level.

The story noted that conservative investors tend to shun low-priced stocks as too speculative, and that Wall Street analysts often stop following them, further reducing their visibility to mainstream investors.

Although history says chances of a strong and fast recovery are slim for single-digit tech stocks, those that do rebound to $15 or higher tend to produce spectacular results, according to the Merrill report. On average, the winners produced total returns from their lows of 189%.

Many of the strongest rebounders produced their returns by being acquired. Of the 84 rebounders Merrill identified in its study, 23 were acquired, providing total returns of 626%. In most cases, Merrill said, the companies were acquired within a year of rebounding.

The analysts cautioned, though, that far more single-digit tech companies went out of business than were acquired at hefty premiums.