Making Cents in Penny Stocks

The occasional shower of pennies from heaven might do our bank accounts some good, but we Fools can't say the same for penny stocks. The world of penny stocks is often full of manipulation and deceit, making it harder for investors to separate its few good offerings from the multitude best ignored. Though some investors think cheaper stocks have a greater chance to appreciate, those stocks may be cheap for a reason. Indeed, a $20 stock may have even better chances of gaining value than a $0.20 one.

Still, many investors dabble at the low end of the stock-price spectrum. At Motley Fool CAPS, we award the "Pennies" title to investors who rate stocks trading in the single digits more than half the time. Believe it or not, you'll find some of the best CAPS All-Stars among those players.

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's the latest list of low-priced stocks with All-Star support:

*Price when the outperform call was made.

As we delve into these "pennies," we find that most of them seem to be generally well-liked by the CAPS community; that is, rated three stars or better.

Good things, small packages?
Nanotechnology continues to hold promise. From nano-materials to nano-engines, the ability to fundamentally alter the structure and purpose at the molecular or atomic level is both mind-boggling and exciting. Companies are sprouting up everywhere to try to exploit the technology. But words like "promise," "try," "hope," and "develop" -- all common in company literature -- do not mean they can and will work, nor that the companies can be viable investments.

One company that hopes (there's that word again) to capitalize on the developments is Harris & Harris, a venture capital firm that focuses exclusively on this field. The risk here is that few or none of the ventures it's backing will produce anything commercially viable or be viable companies themselves. Of course, the potential is what the analysts at Motley Fool Rule Breakers saw when they recommended Harris & Harris.

For investors on CAPS, the debate itself turns on the promise vs. the reality thus far. CAPS player Irishmac noted about nine months ago that Harris & Harris doesn't have profitable investments and there doesn't appear to be much to expect from it on the horizon, either.

[I]t occured to me that nano investing is like gas physics. How ? Overall, the trend is predictable... However, just like you can't predict how an individual atom in a gas will move, it seems to me you can't pick an individual nano stock. But hold on, [Harris & Harris] is a fund ? Yeah but they only have a couple of dozen investments (atoms !) at best... [T]he "gas" of nano is vastly broader: there must be tens of thousands of scientists worldwide, working [in nano]... Where will the breakthroughs come from ? Caltech ? Samsung ? IBM (NYSE: IBM) ?... [Harris & Harris] ?

You can read his longer analysis here.

On the bull side of the aisle, last fall, CAPS investor mindsofwealth wrote that an investor in Harris & Harris needs a long-term mind-set.

NanoTech is a key technology of the future. TINY wins as nanotech companies they have funded go public and the value of the company increases. In the short term I don't expect it to experience tremendous growth. In the long term I do.

Make some change
What do you think? Should we fill up the change jar with these penny stocks, or ignore 'em like a discarded coin on the street? Consult our free Motley Fool CAPS investor-intelligence community, where your two cents count, just like everyone else's.