5 Low-Priced, High-Star Stocks

Buying stocks simply because they trade for less than $10 remains one of the "lowest" -- but most tempting -- forms of investing out there.

After all, nothing trounces Mr. Market quite like a $2 stock that moves into double digits over just a short period of time. Unfortunately, thanks to the numerous risks that low-priced stocks carry, these megamultibagger returns don't occur as frequently as one would hope.

Price means nothing
Here at the Fool, we do our darnedest to diagnose and prevent the critical stock affliction known as "cheap-osis" -- the belief that a stock's per-share price, on its own, tells you whether a stock is cheap or expensive, attractive or unattractive, a winner or a loser.

Through the use of splits and reverse splits, management can make the price of its shares literally anything they want. That's the reason a $100 stock like Diamond Offshore Drilling (NYSE:DO) might very well be a great opportunity, while most penny stocks are too wild to buy at any price.

Your weekly dose of sweet 'n' low
Sadly, though, some incidents of cheap-osis will never be cured completely. So, with the help of our Motley Fool CAPS intelligence database, we'll screen for stocks trading at less than $10 that also have enough investment merit to earn a CAPS rating of five stars.

Without further ado:

As always, don't view these stocks as formal recommendations, but rather as ideas you may want to research further. With that said, Internet Initiative Japan and Repligen might be worth some of your own Foolish due diligence.

Take the initiative?
You don't need this Fool to tell you that Asia's booming growth provides some of the most potent investment opportunities in the market. That is, if you're selecting from the cream of the crop.

My Foolish colleague Todd Wenning recently introduced us to the Top-Rated Asian Stocks from our CAPS community, where, at No. 5, stood a lowly priced stock without a single All-Star bearish about its prospects: Internet Initiative Japan.

IIJ is a Tokyo-based Internet service provider currently serving 6,500 companies and public organizations. Fueled by key moves into the outsourcing and systems integration services, IIJ has grown its top line, net income, and operating cash flow at a double-digit clip in each of the last three years.

After a decline of 20% over the last six months, IIJ trades at a P/E of 14. With returns on equity in the mid-20% range, not to mention a fairly solid balance sheet, IIJ looks reasonably priced -- at least in this Fool's eyes.

CAPS All-Star StatsGeek chimes in:        

This stock trades at a low multiple to cash flow. Another factor that makes me bullish is that if the yen carry trade ever goes bad, the yen will strengthen against the U.S. dollar, making IIJI more valuable in dollar terms. But the latter is just gravy.

Biotech battle
Repligen, a Massachusetts-based biotech company, is another low-rider that our community has high hopes for. One of my favorite investing pastimes is searching for specific catalysts that could possibly boost a stock's price in a short period of time. Well, according to our CAPS community, Repligen certainly has no shortage of near-term catalysts in the woodwork.

The bullish sentiment for Repligen centers around its patent infringement case against ImClone Systems (NASDAQ:IMCL), which finally received a court date of Sept. 10, 2007 from the U.S. District Court. Back in 2004, Repligen and the Massachusetts Institute of Technology (MIT) sued ImClone for the unlicensed use of Erbitux -- a cancer drug that led to roughly $1.5 billion worth of sales for ImClone. Since then, the suit has received several favorable rulings, giving Repligen Fools that much more confidence in the final outcome.

To be sure, it seems as though Mr. Market is just as optimistic about the trial, having sent the shares over 50% year to date. However, CAPS player brafdlog says investors don't need to hang their hats entirely on the trial, arguing that there's a solid business to bet on, as well:

13D filed by superinvestor Ronald Chez, Sept. 10 trial date in suit by RGEN and MIT vs. ImClone for patent infringement regarding Erbitux, sales increases in Protein A and SecreFlo, strong balance sheet, positive technicals in stock chart, strong pipeline, etc.

The Foolish conclusion
Despite our Foolish attempts to educate the investment public about cheap-osis, the allure of low-priced stocks is simply undeniable. The good news, though, is that there are indeed single-digit wonders out there that can also make great investments.

So, if you really have a bad case of the 'osis and would like to find more good low-priced stocks for yourself, then head over to our Motley Fool CAPS community. It's 100% free -- the lowest price you'll find anywhere.

Foolish contributor Brian Pacampara swallows a couple of 10-Ks each day to prevent cheap-osis and owns no position in any of the companies mentioned. The Fool's disclosure policy is always in tip-top condition.