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 three 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
|
| Harvest Natural Resources (NYSE: NYSE: HNR) |
$8.99 |
**** |
(4.5%) |
| Hecla Mining (NYSE: HL ) |
$6.53 |
**** |
15.9% |
| Hercules Offshore (Nasdaq: HERO ) |
$4.22 |
**** |
0.1% |
Sources: Motley Fool CAPS and S&P Capital IQ.
These three companies may be low priced, but that isn't necessarily enough to suggest 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.
Hiding in plain sight
With far-flung assets around the globe, Harvest Natural Resources apparently isn't an easily valued oil and gas company, because its shares have been sliced 31% over the past year despite seeing production increases and new the development of new fields.
Of course, its properties are in some high-risk regions, including Venezuela, where strongman Hugo Chavez has a penchant for nationalizing industries, so investors are perpetually holding their breath. Although if certain analyst expectations are correct and Harvest sells its Venezuelan assets, perhaps to the Chinese or Russians, shareholders will happily exhale.
Still, output increased 36% last quarter, and the company reversed a year-ago loss with a $5.1 million profit this time around. Perhaps more lucrative for it will be its oil discovery off Gabon, as the west coast of Africa is becoming a hotbed of oil exploration. Total (NYSE: TOT ) is diving in with three licenses there, Anadarko Petroleum is off Ghana, and even Hyperdynamics (NYSE: HDY ) has been searching the waters off the Republic of Guinea for the best place to drill.
In risk there is reward, however, and CAPS member JPAKolypse86 thinks the scales tip in favor of Harvest.
Definitely a risk play if i ever saw one. The good: The oil slump, bad cash flow, and disappointing earnings have combined to push the price of HNR under its book value. Current estimates put next years EPS almost doubling over this years estimate.
Let us know in the comments section below or on the Harvest Natural Resources CAPS page whether you think it will get out profitably, and then add it to your watchlist to see whether it pulls it off.
Silver bells
It seems ridiculous, doesn't it, that with cash costs net of byproducts of just $0.67 per ounce, Hecla Mining trades at such a discount, its stock more than 40% below its highs?
While third-quarter numbers seem pedestrian -- silver sales up just 4% as production was down across the board -- the miner established a dividend in the quarter, becoming the first to tie the payment to the price of silver after Newmont Mining (NYSE: NEM ) did the same for gold. It settled the environmental litigation that caused the market to trash it in the first place while increasing the amount available for borrowing under its credit facility. It is a more financially sound company today.
CAPS member MajorBob04 says the forces that have held it back are ready to propel it forward now: "Hecla Mining is poised to reap record profits for a long time, at least until commodity prices and/or demand tapers off (not likely for at least a couple years), or production / supply outstrips demand (not likely for at least a couple years)."
Put Hecla Mining on your watchlist and let us know in the comments section below whether you think it will surprise Wall Street next quarter.
Not so shallow
Following the oil spill, the Gulf of Mexico drilling moratorium forced rig companies to pull up stakes and head to locales where better opportunities existed. With the gates to the Gulf unlocked again, activity is now picking up. and Hercules Offshore is benefiting from the vacancies created when others left for bluer waters.
Last quarter, it reported that domestic dayrates rose by $10,000 a day on average from the year-ago period and revenues more than doubled, mostly from the acquisition of rigs from Seahawk Drilling, which was forced into bankruptcy because of the moratorium. Hercules significantly narrowed the division's losses, too.
Where Seadrill (Nasdaq: SDRL ) is successfully exploiting the deepwater space, it seems Hercules is poised to profitably exploit the shallow waters of the Gulf.
More than 96% of the 1,650 CAPS members rating the driller think it will beat the Street going forward. Add Hercules to the Fool's free portfolio tracker, and tell us on the Hercules Offshore CAPS page whether this is a deeper opportunity than it appears.
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