Making Cents in Penny Stocks

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 some of 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:

^Price when the outperform call was made.

As we delve into these low-priced "pennies," we find that the CAPS community generally likes most of the companies, because most have ratings of four stars or more.

Fiber-optic opportunity
Wireless network component maker Finisar will soon reap the benefits associated with the smart move it made in acquiring Optium. The effects won't appear immediately because in the optical component industry, the pace of change can seem glacial. Yet the combination of these two businesses will create the world's largest industry supplier, supplanting JDS Uniphase (NASDAQ:JDSU), while giving the new company a much larger scale on which to compete.

The industry is fragmented with many such suppliers, so scale could be useful to the successor company. The particular benefit of this merger is that there is little to no overlap in the products or processes each brings to the table; because the two companies share customers, that ought to provide a healthy revenue boost.

Not only has Wall Street warmed to this merger, but Main Street has as well. Investors like CAPS player nradisic liken it to the rocket ride of Cisco (NASDAQ:CSCO) in the early 1990s.

The biggest supplier of optical switches in the world thanks to a recent merger and selling at $2. Did you miss the CSCO ride in the 1990's? Jump aboard...

While All-Star SaintCroix was incorrect in thinking that Google (NASDAQ:GOOG) would ultimately prevail in the wireless spectrum auction held earlier this year (Verizon and AT&T won), it's likely that his prediction of a large optical build-out may yet come to pass.

I'm betting Google will [win] the wireless spectrum auction in a couple of months and we'll see a huge boom in an optical buildout. Bullish.

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 counts as much as anyone else's.