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.

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 members.

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:

Source: Motley Fool CAPS   *Price when the outperform call was made.

Your two cents worth
Last month China Digital TV issued a third quarter guidance forecast with reduced expectations which hurt shares. However, it was only reining in the top end expectations because orders would be deferred to the fourth quarter. The earthquake in China earlier this year coupled with the Olympics that followed on its heels prevented China Digital TV from obtaining and implementing technology upgrades. With much of that behind them now, CAPS member NationsPatriot suggests the current share price weakness can be seen as an opportunity.

Rebounding off a yearly low; [China Digital TV] continues to dominate its sector. While it's sales & services forecasts will take an expected small hit during the '08 Beijing Summer Olympics, their 4th Qtr outlook appears to modestly outperform what will be a slow 3rd Qtr slump. Their [year over year] financials are incredible, and will continue to post record earnings once the one-time "inactive" period during the Olympics passes, allowing [China Digital TV] to get back on track and dominate the market share in China.

There's a financial earthquake in the works for the newspaper industry. Facing declining ad revenue and shrinking subscriber rolls, many are saddled with excessive levels of debt as they attempted to expand to forestall collapse themselves. During a period when even flagship papers like the New York Times (NYSE:NYT) and Washington Post (NYSE:WPO) are struggling to meet the demands of the market, smaller more thinly stretched publications like Lee Enterprises face an even more daunting task.

While CAPS All-Star MoneyHarish sees Lee as a potential takeover target and calls for it to outperform, fellow All-Star ibarz says its ability to pay down some of its debt shows it's expansionist strategy may yet pay off: "This one's a long shot. Took on high levels of debt to expand and acquire, and but was able to reduce this debt last quarter. This is my Sam Zell trade."

Sugar-based ethanol might be a sweet deal. With oil's fall and the dollar's rise, sugar and ethanol producer Cosan says production costs ought to be lower and margins higher which will be coming at a time when there is stabilization in the supply of sugar. All that bodes well for Cosan which has inked a deal with Sweden's SEKAB to provide it with sugar-based ethanol. SEKAB projects ethanol will surpass gasoline use within the next eight years. That's one of the primary reasons CAPS member EPS100Momentum picked Cosan to outperform the market.

Sweden is far ahead of most EU countries on use of biofuel. As use of ethanol increases there is an increasing demand for sustainability declarations and certification. As the ongoing EU process seems to be dragging on, the trade associations BioAlcohol Fuel Foundation (BAFF), which represents the ethanol market in Sweden, and UNICA, which represents the sugar-cane industry in Brazil, have agreed to jointly drive a process with the aim of shifting the entire Brazilian ethanol industry toward more sustainable production.

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? It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Consult our free CAPS investor-intelligence community, where your two cents count as much as anyone else's.