Avoid These Stocks Under $1

Stocks under $1 are alluring because of their gain potential - but they rarely pay off.

Investors keep going back to these penny stocks, though. It's tempting to invest a few dollars in stocks trading at pennies per share for a chance of some rich returns.

Without question, it is indeed possible to score a big win with penny stocks. But in truth, the odds are against you when trying to hit it big with stocks under $1.

Here's why.

The Problems with Most Stocks Under $1

Pump-and-Dump Schemes: You've probably gotten an email, a snail mail flyer, or call touting a penny stock that's the next "big" thing. The thing is, the issuing company hired a promotional firm to tout the company's potential. Payment to the company doing the promoting is often in a big chunk of shares - 100,000 of shares of more. When the hyped stock price rises, the promoter and insiders sell shares and send the stock price sinking.

Lack of Liquidity: Many penny stocks are thinly traded. Often, there are no specialists in penny stocks whose jobs are to make an orderly market. And because penny stocks are so speculative, traders are quick to react to any news. That simply fuels further speculation and creates wide bid/ask spreads.

Loose Regulations: Most penny stocks trade on the over-the-counter market, which is largely unregulated. Since it is not required for OTCMKT-listed securities, most companies traded there choose not to report financial returns, important developments, insider transactions, and press releases. In short, they don't share disclosure documents that are key in making educated investment decisions.

Risks: All investments involve risks, but penny stocks are among the riskiest. Many are new companies with no proven track record, assets, operations, or revenues. Others have products and services still in development or yet to be tested in the market.

Now here are three penny stocks that are getting more investor attention lately - but are best avoided.

Stocks Under $1: 3 to Avoid

Stocks Under $1 to Avoid, No. 1: Avalanche International Corp. (OTCMKTS: AVLP) manufactures and distributes electric vaporizers and e-cigarettes. The Las Vegas, Nev.-based company offers vape liquid and accessories under the Smith and Ramsay brand names.

The company's premium products are focused on vape stores and traditional smoke shops. Other products target convenience store and gas station markets, as well as ethnic-specific markets. The company also plans to introduce external brands focused on hardware/liquid combinations. These include disposable devices with preloaded liquid and/or preloaded cartridges for specific devices.

Avalanche recently launched the Avatar Vape Pen, licensed from European manufacturers where it has already been broadly deployed. Described in a recent study as sporting a discrete and stylish Italian design, the vape pen is said to be convenient and easy to use, and its functional design is reliable and attractive.

The news gave shares a nice boost. But gains were short-lived.

AVLP shares have traded between $0.50 and $7.50 over the last 12 months. Today they are around $1.01 in mid-afternoon but traded under $1 this morning.

Stocks Under $1 to Avoid, No. 2: Patent Properties Inc. (OTCMKTS: PPRO) develops, licenses, and enforces patented technologies. The Stamford, Conn.-based company grants intellectual property rights for the use of, or pertaining to, patented technologies. It monetizes its intellectual property through the sale of select patent assets.

PPRO's patent portfolio consists of 401 granted patents, as well as 79 pending patent applications. Its patents describe inventions in areas including authentication techniques, Internet search, social networking, advertising, online transactions, and others.

All patents are licensed to the company's executive chairman, Jay Walker. Some might find that troubling.

At a current $1.20, it is not technically under $1 right now, but it looks like it's heading there. Shares are off 42.86% year to date.

Stocks Under $1 to Avoid, No. 3: ECARE Solutions Inc. (OTCMKTS: ECSL) is an integrated healthcare company based in Palm Beach Gardens, Fla. Its company operates through three divisions: Energy, Healthcare Technology, and Healthcare Services.

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The Energy division produces and distributes a fuel additive under the Singular 96 brand name. The Healthcare Technology division provides Electronic House Call, a remote patient monitoring suite of products, and medical data information exchange/network services. The Healthcare Services division offers pediatric home healthcare services.

This stock also isn't technically under $1 right now - but it's close. At $1.10, ECSL shares are down 56% year to date. They traded below $1 in October 2014.

Shares soared from $1.10 to $3 late last year thanks to two hyped press releases. One ballyhooed that ECSL's Singular 96 was independently tested and certified. The second claimed that ECSL's alternative fuel EcoFlex 96 was approved for sale in Florida. But the stock lost all those gains and is nearing the $1 mark.

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