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 the CAPS community has singled out as those with the best chances of success by bestowing four- and five-star ratings on them. We just might want to turn our umbrellas upside-down to catch them!
Here are three low-priced stocks enjoying high CAPS support:
|
Company
|
Recent Price
|
CAPS Rating (out of 5)
|
Return on Capital
|
| Chimera Investment (NYSE: CIM ) |
$3.48
|
****
|
19.6%
|
| Great Basin Gold (NYSE: GBG ) |
$2.05
|
****
|
(2.1%)
|
| Zix (Nasdaq: ZIXI ) |
$4.19
|
****
|
20.2%
|
Just because these three companies are low-priced, that isn't necessarily enough to suggest that they'll have an easier time recording big gains. Low-priced stocks are often low-priced for a reason. We have to check and see what their catalysts for growth might be before diving into the shallow end of the stock pool.
Your two cents' worth
Everyone loves mortgage REITs that invest in agency-backed securities because they keep the profits while taxpayers assume the risks. Investing only in mortgages underwritten by Fannie Mae, Freddic Mac, and the other anthropomorphic housing agencies, the likes of American Capital Agency (Nasdaq: AGNC ) , Annaly Capital (NYSE: NLY ) , and others pay hefty dividends and count on you to pick up the tab if the mortgages go sour.
Even mREITs like Chimera Investment, which typically eschewed the agency route -- taking on more risk but assuming more responsibility for defaults -- have chosen to foist more back onto the taxpayer. Chimera now has a quarter of its investments in agency-backed securities, more than double the rate it had just this past December.
That could be a signal that housing's worst problems are not over yet. Economists expect housing prices to keep falling this year and don't have much hope for next year, either. Chasing yield is risky, and Chimera cut its dividend 18% last quarter, as did Annaly, though by a lesser amount. As a result, CAPS All-Star contradog sees Chimera being the weakest of the mREIT bunch: "[H]eavily leveraged to recovery in housing. I see book value deteriorating with housing double dip."
Add Chimera to the Fool's free portfolio tracker, and then head over to the Chimera Investment CAPS page and tell us whether you're willing to shoulder more risk for the REIT.
Getting better all the time
With gold still hovering in record-price territory, Great Basin Gold retains the promise of moving from a development-stage gold company to a producer. Troubles at its Hollister mine in Nevada initially had the federal Mine Safety & Health Administration put it on a safety watch, but it was removed from that list earlier this year, and its Burnstone project in South Africa is switching from one of construction to production. Great Basin is also enjoying improved recoveries at its Esmeralda Mill.
There's plenty of reason to expect gold prices to keep climbing, too. Greece teeters on the edge of collapse; Moody's downgraded Portugal's debt to junk status; and while the employment picture has slightly improved in Europe, allowing the central bankers to raise interest rates by 0.25%, there's no reason to expect the domestic job market to cause Ben Bernanke to make a similar move.
Better gold prices will mean better profits for Goldcorp (NYSE: GG ) , Yamana Gold (NYSE: AUY ) , and others. Great Basin will want to make the transition sooner rather than later, which is why 96% of the 140 CAPS All-Stars rating the development-stage gold company think it will outperform the broad market averages.
Add Great Basin to your watchlist to track its progress for bringing its mines online.
A good bet
Could managers at Zix have really been that prescient? This company originally offered e-prescription and encrypted email services, and the catalyst investors had in mind for future growth was the passage of Obamacare and its onerous requirements for electronic record-keeping. Yet Zix jettisoned that line of work, opting instead to keep the email business.
Yet we've witnessed a bunch of hackers breaching security at Sony's PlayStation Network, Lockheed Martin, and, the other day, Apple. According to a study by Juniper Networks, 90% of businesses have suffered security breaches, and more than half of them have had at least two. So do we really want our sensitive medical records retained electronically anywhere, particularly with the government, where even the FBI and CIA websites have been hacked? Electronic medical records -- mandated ones, anyway -- could quickly become a dying field.
But the protections offered by encryption services look like they're going to be wildly in demand, and by focusing itself on that aspect of its business (you wonder, though, why Zix couldn't have combined its two specialities) ought to do well. CAPS member SypderMan says there's still room for Obamacare to provide an impetus for Zix's future: "Ever increasing health care regulation and Obama care regulation will push more of the health care sector to using ZixMail product for [HIPAA] compliance."
You can find out whether the email specialist is succeeding by adding the stock to the Fool's free portfolio tracker and following along on its progress.
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? Consult our free CAPS investor-intelligence community, where your two cents count as much as anyone else's.
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