5 Low-Priced, High-Star Stocks

Buying stocks for less than $10 remains one of the "lowest" -- but most tempting -- forms of investing out there.

After all, nothing trounces Mr. Market quite like a $2 stock that moves into double digits over just a short period of time. Unfortunately, because of the numerous risks that low-priced stocks carry, these mega-multibagger returns don't occur as frequently as one would hope.

Price means nothing
Here at the Fool, we do our darnedest to diagnose and prevent the critical stock affliction known as "cheap-osis" -- the belief that a stock's per-share price, on its own, tells you whether a stock is cheap or expensive, attractive or unattractive, a winner or a loser.   

Through the use of splits and reverse splits, management can make the price of its shares literally anything it wants. That's the reason a $100 stock like Affiliated Managers Group (NYSE:AMG) might very well offer a great opportunity, while most penny stocks are too risky to buy at any price.

Your weekly dose of sweet 'n' low
Sadly, though, some incidents of cheap-osis will never be cured completely. So, with the help of our Motley Fool CAPS intelligence database, we'll screen for stocks trading at less than $10 that also have enough investment merit to earn a CAPS rating of four or five stars.  

So, without further ado:

As always, don't view these stocks as formal recommendations, but rather as ideas you may want to research further. With that said, Intervoice and Quadramed might be worth some of your own Foolish due diligence.

A very low voice
Although I get pretty steamed whenever I have to call about my Web service, one thing that impresses me is Intervoice's automated voice system that always manages to properly direct my complaint. Intervoice, which allows more than 5,000 clients to automate their service calls (including my own Internet provider, Canadian-based Rogers Communications), is a recognized leader in the field of interactive voice recognition (IVR).

Recently, Intervoice introduced its new voice portal products, designed to serve customers whether they're using a phone, the Internet, or a mobile phone. As firms continue the trend of applying IVR technology on an enterprise-wide basis, Intervoice should only solidify its position with these "next-generation" products.

I'll let our own CAPS All-Star TMFPlatoish1 have his Intervoice heard out loud:

• Regarding the IVR industry as a whole, Platoish says, "The automation of the customer service experience is a rapidly growing business segment. Companies can immediately reap cost benefits through automation, and the new generation of IVR capabilities can even enhance the customer experience over human interaction. The problems with the first generation of IVR systems are driving companies to more sophisticated solutions."

• And with solid financials, Platoish thinks Intervoice is an attractive way to play: "Intervoice has a nice pile of cash and no debt. They are profitable and cash flow positive. I think we can get a nice run from this one, but I expect it will be bumpy."

Powerful quad
Quadramed, whose software solutions help hospitals to maximize profitability, is another low-riding stock that our CAPS players have high hopes for. Despite sporting a significant contract from the Department of Veterans Affairs and swinging to profitability in 2006, no professional analysts cover the company. In this cloud of obscurity, the stock has doubled within the past two years and looks like it should continue to run.

Hospitals are beginning to feel the pressure to improve quality and efficiency, so Quadramed could see a nice bump in demand over the next few years. By 2015, it's estimated that total U.S. health-care spending will reach $4 trillion, and hospitals tend to represent about a third of those expenditures.

Currently, the company trades at an EV/EBITDA multiple of less than 10 and about 3 times cash per share. So, it might be worth a calculated shot. For example, these two CAPS players chime in with a positive diagnosis:

• KindOfFool says favorable sector trends coupled with balance-sheet improvements make Quadramed an obvious outperformer: "Given the renewed push to clean up the IT support for health-care industry, this company's business is on solid ground. They have added new customers and are cleaning their receivables which should increase their revenue in the coming quarters."
  
  
• Meanwhile, matt2brad considers history and reputation as a sign of good things to come: "It's in a hot space and has a 10+ year pedigree with solid products which are well respected in the industry. They have a significant install base and are poised for growth or takeover target."

The Foolish conclusion
Despite our Foolish attempts to educate the investment public about cheap-osis, the allure of low-priced stocks is simply undeniable. The good news, though, is that there are indeed single-digit wonders out there that can also make great investments.

So if you really have a bad case of the 'osis and would like to find more good low-priced stocks for yourself, then head over to our Motley Fool CAPS community. It's 100% free -- the lowest price you'll find anywhere.   

For more CAPS-related Foolishness:

• 6 Foreign Values With Star Power
• 5 Dynamic Dividend Stocks
• Cold Stocks You're Selling Now

Fool contributor Brian Pacampara swallows a couple of 13-F filings each week to prevent cheap-osis, and he holds no position in any of the companies mentioned. The Fool's disclosure policy is always in great shape.