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 the CAPS community has singled out as having 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

BPZ Resources (NYSE: BPZ  )

$3.24

****

(5.6%)

EnergySolutions (NYSE: ES  )

$4.35

*****

4.9%

Hansen Medical (Nasdaq: HNSN  )

$3.36

****

(51.1%)

Sources: Motley Fool CAPS; Capital IQ, a division of Standard & Poor's.

These three companies are low-priced, but 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 in to the shallow end of the stock pool.

Your two cents' worth
Independent oil and gas exploration and production specialist BPZ Resources recently tapped -- and fully drew down -- a $75 million secured debt facility that it used to finance a new platform in its Peruvian Corvina oilfield. Last year, it ran into a dry hole at its Albacora field off the coast of Peru and subsequently suspended operations there to conserve money, but it's back working to bring the area to commercial production by year's end.

BPZ drills primarily in Peru, but it has some operations in nearby Ecuador as well. It sells all of its production to the Peruvian government's national oil company, Petroperu, a situation that would normally be of concern because of customer concentration, but BPZ believes it would readily find other customers for its output if Peru cut its ties. That's not likely to happen, as the newly elected government is already looking to force companies to meet local demand for gas before shipping supplies elsewhere.

CAPS member WHC01 is looking for BPZ to expand if Peru's political regime remains stable, though the president-elect there already seems to evince shades of Venezuela strongman Hugo Chavez.

Peru also remains an active drilling area for Schlumberger (NYSE: SLB  ) , which just reported double-digit revenue growth in Latin America because of activity there. So add BPZ to the Fool's free portfolio tracker to keep track of the news rising out of South America and see how it affects this E&P play.

The nuclear option
Nuclear-waste remediation specialist EnergySolutions ought to have bright prospects, despite the heightened risks following Japan's Fukushima reactor disaster. China continues to invest heavily in the alternative-energy source, and even amongst countries like Germany that are looking to go nuclear-free within a decade, they still need a way to dispose of their waste they currently produce. In fact, EnergySolutions was granted a permit from the Nuclear Regulatory Commission in June to bring in 1,000 tons of low-level radioactive waste from Germany to dispose of at its Oak Ridge, Tenn., facility.

It also recently won a $417 million, four-year waste-management cleanup contract through a joint venture with Babcock & Wilcox (NYSE: BWC  ) and URS (NYSE: URS  ) .

But analysts worry about lower margins going forward, a highly leveraged balance sheet, and the fact that it has no near-term catalysts for growth. Shares now trade 50% below their 52-week highs, but investors might want to consider that it has a rather wide and deep competitive moat, as rivals aren't easily able to get into this business or reproduce the years of experience EnergySolutions has. An investment here would be one for long-term profits rather than short-term, go-go momentum.

That could be why only one of more than 200 CAPS All-Stars rates EnergySolutions to outperform the broad market averages. Let us know on the EnergySolutions CAPS page whether you think nuclear-waste storage and remediation remains a glowing opportunity.

A chip off the old block
Surgical robotics is the wave of the future in medicine, and Hansen Medical's new catheter system should help the medical-device maker develop a new clientele. It recently won approval in Europe for its new Magellan robotic device that allows doctors to use 3D navigation systems to guide a catheter through the body. It also has applications pending before the FDA, but it's currently not approved for use here. The stock fell more than 25% last week after reporting earnings that showed 23% growth in catheter sales, but operations that are still not profitable.

CAPS member MauiMan4 believes Hansen Medical wins in the end, even if there is competition: "With so many baby-boomers reaching the age of Medicare, many good medical related stocks will be in the fore front."

Add the stock to the Fool's free portfolio tracker, and follow 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.

The Motley Fool owns shares of Schlumberger and EnergySolutions. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


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