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 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 (out of 5 max)

Player

Player Rating

Freddie Mac (NYSE: FRE  )

$4.70

*

vanamonde

99.92

Kodiak Oil & Gas (AMEX: KOG  )

$4.00

****

tuffsledding

99.90

Immersion (Nasdaq: IMMR  )

$9.18

*****

scampbel131

99.73

US Airways (NYSE: LCC  )

$2.38

*

Tankota

99.43

Advanced Micro Devices (NYSE: AMD  )

$4.84

**

Rox6525

99.37

*Price when the outperform call was made.

Buddy, can you spare a dime?
When your mortgage is just about worth more than the financial institution underwriting it, you know there's a problem in the housing market. Freddie Mac, the government-sponsored mortgage backer, has had no shortage of problems these days, and it's taken a lot of jawboning by Fed Chairman Bernanke to keep it solvent. While Freddie's operations are backed by the full faith and credit of the U.S. Treasury -- i.e., taxpayers -- it has still required a Herculean effort from regulators to forestall a complete collapse of confidence in its ability to survive.

Investors over on CAPS are equally divided over Freddie Mac's future, but top-rated All-Star members like falcon2382 feel that with a little searching, you can still see the investment's inner beauty:

Market is overreacting... The mortgages Fannie [Mae] and Freddie own, if taken as a whole unit, are still worth something. Yes, some will be worth 40 or 50% of their original worth, but others will remain at full value. It is certainly important to realize how bad the US market is right now, but people quickly forget that when the news is this negative, it is that way only because the circumstances keep us from looking at the other side of the coin. We love to point out the beautiful when things are good, and we love to point out the ugly when things are bad... It is our way of dealing with pain....

These companies might falter, but they aren't going to disappear.

Chip on its shoulder
OK, so maybe buying ATI wasn't such a good idea after all. Advanced Micro Devices was forced to write down even more charges related to the acquisition. At least it can take some solace in knowing that rival NVIDIA (Nasdaq: NVDA  ) has itself exploded following profit warnings. Even after devaluing ATI by some 44% from its purchase price, AMD is still the second-largest graphics-chip maker behind NVIDIA, though processor problems have done little to help it assault Intel's (Nasdaq: INTC  ) leadership position in the overall chip industry.

While some AMD proponents can be as passionate about the chipmaker as Mac users are about Apple, CAPS member petebow4 simply feels that AMD chips are technically superior to those of Intel's:

Not to get too technical, but AMD's system for quad core has pulled ahead of Intel. (For you nerds/EE's/fellow CMPE's out there...compare if AMD quad core chips need to ever touch an off chip bus to communicate with one another) AMD will have the ability to come into the OC market again, which is what fueled them through the early 2000's....

AMD and Intel have always been intertwined, which as been a great benefit for the consumer. The fact they are in direct competition has caused the prices of computers to fall. One's stock is up, the other's is down. And I believe that they will continue to fluxuate into the future. It's AMD's time to be up.

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 count as much as anyone else's.

Intel is a Motley Fool Inside Value selection. Immersion is a Motley Fool Rule Breakers pick. NVIDIA and Apple are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey owns shares of Intel but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy always wins the coin toss.


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