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 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

Accuray (Nasdaq: ARAY  )

$4.12

****

(8.7%)

Dynavax Technologies (Nasdaq: DVAX  )

$2.13

****

(78.1%)

Suntech Power (NYSE: STP  )

$3.05

****

4.7%

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

These three companies may be 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
By acquiring Tomo Therapy, which it expects to be accretive to earnings beginning next year, radiosurgery-system specialist Accuray has a broad-based global footprint whose businesses should enjoy increased operating efficiencies, a complementary patient base, and lower cost bases.

Yet like Intuitive Surgical (Nasdaq: ISRG  ) , Accuray remains dependent on hospital capital-spending programs, which, though thawed, have not fully recovered. It also remains at the mercy of fickle reimbursement policies for its services while its CyberKnife faces tough competition from rival Varian Medical (NYSE: VAR  ) . Look for it to rely on Tomo to help fend off Varian and Siemens.

CAPS member MarketHustler says the depressed stock value is unwarranted and is looking for a rebound to occur: "Buying at a discount and there is really nothing to show why they are so undervalued except for S&P downgrade scare. Waiting for some consolidation."

Add Accuray to the Fool's free portfolio tracker to see whether its progress can cut through the fog like a knife.

Charge it!
The global hepatitis market was estimated at around $5 billion in 2009. That kind of market had investors hoping Dynavax Technologies' lead hepatitis B vaccine, Heplisav, would win it a spot alongside the top treatments now offered by Roche and Merck (NYSE: MRK  ) . While its stock was trending down since earlier this year, shares plunged after Dynavax reported mixed results from late-stage phase 3 clinical trials. It proved to exhibit superior efficacy and safety versus GlaxoSmithKline's Engerix-B, but product inconsistencies put its future in doubt

The CAPS community remains solidly behind Dynavax, with 95% of those rating it believing that it will outperform the broad market averages. As only one All-Star has marked it down and Wall Street is unanimous in its opinion of outperformance, Dynavax does have popular opinion behind it.

Let us know on the Dynavax Technologies CAPS page whether you think that's enough to win over the FDA.

Red, the new green
Chinese module vendor Suntech Power got caught up in the downdraft that just about every other solar shop did in the wake of the riots over pollution that closed down JinkoSolar's (NYSE: JKS  ) panel plant. When so-called "cleantech" proves dirty after all, it upsets the balance.

Despite all the gains solar has made, this renewable-energy source really can't survive on its own without government assistance. It needs to pay producers to make the product (subsidies) and it needs to pay consumers to buy it (credits). That's not exactly a robust market. Add in sketchy deals to politically connected companies, and you have conditions ripe for heavy cloud cover over the industry.

CAPS member jedsky22 still believes Suntech has proved itself able to compete effectively against the other players in the space.

Impressive revenue growth. Solar energy is a viable alternative energy technology already on the market with an established and growing demand. Suntech seems best positioned to grow with this market.

Add the stock to the Fool's free portfolio tracker and follow along on its progress. Let us know in the comments section below whether you agree that the only hope this business has is for the government to keep propping it up.

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.

Editor's note: A previous version of this article incorrectly stated the number of new hepatitis cases diagnosed each year. The Fool regrets the error.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of GlaxoSmithKline. Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline and Intuitive Surgical. 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. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 08, 2011, at 2:54 PM, chopchop0 wrote:

    aray is garbage. Considering you could pretty much hit a target on any stock in the middle of 09 and be up today, ARAY is one of those few exceptions.

    Varian makes the more versatile workhorse radiation machines that can also do radiosurgery. ARAY's cyberknife is a niche machine that does not have the same versatility. With a few add-ons, most varian machines can switch from doing standard radiation to radiosurgery. cyberknife is a radiosurgery-only machine. The tomo acquisition may help, but again, TOMO is also a more niche technology and if a department only has one choice for a machine, it's probably going to be a Varian

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