5 Low-Priced, High-Star Stocks

Buying stocks simply because they trade 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 Enstar Group (Nasdaq: ESGR  ) might very well be 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.  

Company

Price (As of 04/16 Close)

Industry

BPZ Energy (AMEX: BZP  )

$6.80

Oil and Gas

Actuate (Nasdaq: ACTU  )

$5.76

Software

Himax Technologies (Nasdaq: HIMX  )

$5.66

Semiconductor

Endeavour Silver (AMEX: EXK  )

$5.26

Silver

Favrille (Nasdaq: FVRL  )

$3.96

Biotechnology

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

On an LCD high
I'm addicted to LCD. I've got two flat panels at home -- in the form of a PC and a TV --  yet I still find myself gawking at the newest models over at the local Best Buy. So when LCD-chip maker Himax Technologies showed up as one of CAPS' favorites, I just had to stop and stare.

Currently, Himax owns about a fifth of the market for large, thin-film transistor liquid crystal display (TFT-LCD) technology. Intense competition has made growth tough to come by within this market, but Himax's acquisition of Wisepal -- a company geared toward smaller display screens -- could give it much-needed boost. As handsets and consumer electronics grow worldwide, Wisepal's key relationships with Nokia (NYSE: NOK  ) and Motorola will surely aid Himax's competitive position.

Just how much will it help? I'm not sure. But with a stock decline of 30% over the past year, a PEG of 0.74, and a thumbs-up from CAPS All-Star firm Merriman Curhan Ford, the picture quality looks decent (from a distance, anyway).    

FreethinkerKW is yet another CAPS All-Star who thinks Himax is a sharp move:

Himax is strong in on-demand chip technology for makers of LCD flat panels, from TVs to computers. And this firm is based in Taiwan, right in the shipping lanes where the best LCD panels are being manufactured by the Koreans, Japanese and now the Chinese. LCD is fast replacing plasma ... I've seen the future. I'm investing in it here.

Acting low and slow
Actuate, a provider of business software, is another low-priced stock that our CAPS players have high hopes for. Actuate's expertise is in providing "enterprise reporting applications" for use in day-to-day business activities.

Actuate has had relatively unimpressive top-line growth over the past several years, but according to some in our CAPS community, this has largely been the result of CEO Peter Cittadini's focus on building a sustainable advantage. In 2006, Actuate grew its top line 21% while generating a healthy dose of cash flow, so it might be a sign that Cittadini's positioning efforts are indeed starting to pay off.

With nine of the top 10 U.S. banks already using Actuate's services, and IDC forecasting a five-year compound annual growth rate of 10% in business-intelligence spending, this is one low-rider with at least a shot at the double-digit big time. Sparke303 lets us know why Actuate's PEG of 0.96 is actually accurate:

... it's rare to see a software company that would sacrifice near-term quarterly "progress" for the sake of real, long-term success, and ACTU has done it consistently and wisely! Growth of 20%/year should be attainable for the next 5 years, and the management team is committed and knowledgeable.

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.   

Make seven picks on CAPS by April 24, and we'll send you a free copy of The Motley Fool Five-Star Report. Inside you'll discover how to use CAPS as a research tool, and you'll receive a recommended five-star CAPS pick poised to beat the market for the next decade or more -- one that you can easily translate into profits for your real-world portfolio. Get started now!

Fool contributor Brian Pacampara swallows a couple of 10-Qs each week to prevent cheap-osis, and he holds no position in any of the companies mentioned. Best Buy is a Motley Fool Stock Advisor choice. The Fool's disclosure policy is always in great shape.  


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