3 Stocks That Should Go for a Reverse Split

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Well, that reverse split wasn't so painful.

Jamba shares moved 14% higher last week after kicking off the week with a 1-for-5 reverse split.

Every five shares of the smoothie chain operator were replaced with a single share priced five times higher. The end result is that Jamba closed out the month of May at $2.99, or $14.95 after the reverse split kicked in after May 31's close. It moved higher in four of the first five days of post-split trading to close out its first week at $17.

Reverse splits have negative connotations, and rightfully so. For every Jamba that executes one to boost its shares into a price that swaps speculators for institutional investors, there are countless fading companies going through reverse splits to maintain their exchange listings.

For every rising company going for a reverse split -- and Jamba did hit a multiyear high before the move -- there are too many desperate companies going this route in desperation.

With Jamba's seemingly successful split, which company with a share price in the low single digits is a prime candidate for being the next successful reverse? Let's check a few out.

Alcatel-Lucent -- $1.84
Despite its tiny share price, Alcatel-Lucent did close at a 52-week high on Friday.

The global provider of products and services for the networking and communications industries may be losing money on flat revenue growth, but losses are narrowing. There's also more to the flat top-line performance than meets the eye as reasonable growth in its networks and platforms businesses is offsetting double-digit declines in its optical networking operations. Alcatel-Lucent is also taking better bets, exiting or restructuring contracts where the cost structures aren't fiscally prudent.

A shrewd move to raise more than $2 billion in new financing late last year should help it ride through upcoming debt repayment milestones until it returns to profitability as early as next year.

Sirius XM Radio -- $3.46
Late last month, I made the unpopular argument that the top dog of satellite radio should follow Jamba into a reverse split, and I'm not backing down.

Sirius XM has been one of the market's biggest winners over the past four years, but there is a problem with having nearly 7 billion shares outstanding. If Sirius XM were to join Jamba in the mid-teens, we would be talking about a market cap of $100 billion. That's just not realistic given the media giant's current business model.

There are enough retail and institutional investors steering clear of stocks trading for $3-and-change that it could boost Sirius XM's profile if it did go through with a reverse.

Capstone Turbine -- $1.30
Things are finally starting to happen for the microturbine maker. Revenue is growing at a healthy clip, and analysts see Capstone finally turning a quarterly profit later this year.

Capstone's top line is growing as new orders continue to pile in, and a growing backlog of orders is a healthy indicator of strong growth in the coming quarters. Buyers are drawn to Capstone's turbines, which run efficiently on different types of fuel.  

The one thing standing in the way of Wall Street credibility is its share price, which has weaved in and out of a buck for most of the past four years.

It's better to go with a reverse split now -- when momentum is on its side, after it soared 59% since bottoming out last month -- than to wait until later, when it may be a matter of meeting the exchange's minimum listing requirement.

Move forward
There's more to life than low-priced stocks that may benefit from reverse splits. Some of the market's best stocks have pretty large price tags.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article 3 Stocks That Should Go for a Reverse Split originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz owns shares of Jamba. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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