Making Cents in Penny Stocks

The occasional shower of pennies from heaven might do our bank accounts some good. Alas, Fools can't say the same for penny stocks. They're often subject to manipulation and deceit, making it harder for investors to separate the few good offerings from the multitude best ignored.

Still, many investors enjoy dabbling at the low end of the stock-price spectrum. At Motley Fool CAPS, a "penny stock" is any stock trading under $10, and you'll find some of the best CAPS All-Stars regularly seeking out winning investments there. We identify them with a penny icon.

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 are three low-priced stocks enjoying All-Star support:

+Price when the outperform call was made.

Your two cents' worth
Famed money manager Peter Lynch once noted that insiders can sell shares for any number of reasons, but typically buy them for only one: They think the stock price is going to go up. You might, for example, want to take a closer look at health food products company Smart Balance (Nasdaq: SMBL), whose CFO more than doubled the shares he owned by making a market purchase of his company's stock.

Same with private ambulance and fire service provider Rural/Metro (Nasdaq: RURL), whose CEO just bought several hundred thousand dollars' worth of shares at market prices. It's not an automatic buy indicator, but when a company's top operational and financial guys are scooping up shares, you might want to look more closely.

By the same token, I wouldn't necessarily read too much into the sales of shares by insiders at stem cell researcher Geron. The footnotes show the stock sales are being made to pay payroll taxes associated with the vesting of restricted stocks awards. While CAPS member thechumley is generally bullish about the long-term prospects for the company, he sees nearer term risk:

Directors are selling across the board. With 167 million in cash at a 50m burn rate i think they will be able to see things through. Buyer at 4.5 but will thumb down in short term.

A short circuit
Designer jeans maker Joe's Jeans made a big splash in the markets over the past year, tripling in value as its fashion line caught the attention of entertainment style mavens. With Beyonce and other glitterati wearing the clothes, the stock became an instant hit and wasn't quite the unknown quantity it once was. Yet was it hype that sent shares higher, or something more basic like solid fundamentals that put it on the same plane with True Religion Apparel (NYSE: TRLG)?

CAPS member tengrandchicago thinks Joe's Jeans has the numbers to back up the sensationalism surrounding it:

I would only watch out for their income tax situation. The company has been working their deferred tax assets and had some significant jumps around in tax benefits/liabilities. Their effective tax rate jumped to 48% this past quarter from 15% a year ago. These wild swings make it hard to look at EPS and Net Income. Stick to the cash flow on this one and keep a close eye on their tax situation the coming quarters.

Chemically bonding
I want to believe in Sirius XM Radio as an investment, but it's hard. Content is king there and whether its Howard Stern or your favorite rock or classical music station, the unfiltered excellence of the sound is what keeps you coming back for more. With automakers like Ford (NYSE: F) and GM funneling more and more potential subscribers their way with every new car they sell equipped with the service, converting only some of them to paying customers will keep the subscriber rolls growing.

Yet it's hard to get past the large and growing debt situation (up $400 million from the year-ago period) even as subscriber acquisition costs are rising. Sirius is on firmer financial footing now, but threats to its business model abound.

CAPS member jabab feels Sirius has been unjustly held back as the markets tried to sort its situation, but now it's poised to advance:

It doesn't matter who's analysis is right or wrong at this point, just the fact that analysis is tied to something will give the stock price stability. Things are going right for SIRI as of late and the stock should continue to show incremental gains as the investing community finally makes decisions on what it thinks about this company.

Sirius XM Radio is one of those stocks that stirs passions. If you can keep the invective in check and make a cogent case, head to the comments section below to convince me the satellite radio provider can still make a good investment.

Penny for your thoughts
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.