Making Cents in Penny Stocks

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The occasional shower of pennies from heaven might do our bank accounts some good, but we Fools can't say the same for penny stocks. The world of penny stocks is often full of manipulation and deceit, making it harder for investors to separate its few good offerings from the multitude best ignored. Though some investors think cheaper stocks have a greater chance to appreciate, those stocks may be cheap for a reason. Indeed, a $20 stock may have even better chances of gaining value than a $0.20 one.

Still, many investors dabble at the low end of the stock-price spectrum. At Motley Fool CAPS, we award the "Pennies" title to investors who rate stocks trading in the single digits more than half the time. Believe it or not, you'll find some of the best CAPS All-Stars among those players.

Pinching pennies
This week, we'll look at some of the low-priced investments these All-Stars have praised. If the best investors regularly scanning this end of the market have singled out these companies, we might want to turn our umbrellas upside-down -- or run for cover!

Here's the latest list of low-priced stocks with All-Star support:

Company	Price*	CAPS Rating (5 max)	Player	Player Rating
PeopleSupport (Nasdaq: PSPT)	$7.89	*****	dinasourneil	99.96
North American Palladium (AMEX: PAL)	$6.97	*****	OOji	99.94
Endeavour Silver (AMEX: EXK)	$4.42	*****	uvcmodel2007	99.17
Trinity Biotech (Nasdaq: TRIB)	$5.00	****	Rox6525	98.39
Tenet Healthcare (NYSE: THC)	$4.20	**	nasidney	97.71

*Price when the outperform call was made.

As we delve into the low-priced "pennies," we find that these companies are generally well-liked by the CAPS community, as most are rated three stars or better.

A company in sick bay
Although it seems to have put its scandals behind it, Tenet Healthcare remains a sickly company and stock. Battered because of inflated revenues and a subsequent SEC investigation, the 12-state hospital operator has been a malingerer. Shares on a steady five-year slide managed to turn up slightly beginning only last fall, as the company began turning itself around. Earnings have improved, though there are still losses, and Tenet has signed a series of contracts with insurers including UnitedHealth (NYSE: UNH), Cigna (NYSE: CI), and Coventry Health.

Such contracts have boosted the confidence of CAPS investors like korhonen, who tagged them in this late January pitch as essential to Tenet's future profitability.

[Tenet Healthcare] and WellPoint's Blue Cross of California announced a new multi-year agreement covering 16 THC California hospitals and specialty hospitals starting 2/1/08. This should help Tenet's profitability and show the beginning of a turnaround.

Others, like CAPS player johngalt04 last November, like that the hospital operator managed to continue operations despite looking like it could go bankrupt.

[This company] has recovered from some foolish mistakes in the past and did so without going bankrupt. Picked by Sir David a few years ago and dropped they seem to be on the road to recovery. ... I like their toughness.

However, it was the lack of focus and the need to restructure that had CAPS investor GunnyF believing last October that Tenet would succumb. Yet with those objectives now in place, would GunnyF change his forecast?

Tenet Health Care has really been beating itself badly. This company is incapable of turning itself around right now. It needs a new structure and an overhaul of its leadership. Where is the focus? The current focus is on the patient, great for the hurt and injured; bad for the investor.

Make some change
What do you think? Should we fill up the change jar with these penny stocks, or ignore 'em like a discarded coin on the street? Consult our free Motley Fool CAPS investor-intelligence community, where your two cents are as welcome as cold lemonade on a hot day.