Making Cents in Penny Stocks

"That's what storms were made for
And you shouldn't be afraid, for
Every time it rains, it rains
Pennies from heaven."

-- Bing Crosby, "Pennies From Heaven"

If it did rain pennies from heaven, a few good thundershowers would sure do our bank accounts some good. But as Fools, we know that penny stocks are dangerous to our financial situation. Because the world of penny stocks is full of shysters peddling their manipulation and deceit, it's often hard for investors to separate the few good companies that reside there from what's best ignored.

Although many people like investing in penny stocks, believing that such stocks have a better chance of increasing many times in value, there's nothing that says a $20 stock can't double, triple, or quadruple in value just as easily as a cheaper one could. Considering that a cheap stock may be cheap for a very good reason, there's ample evidence to suggest that the higher-priced stock may actually have a better chance of going up than the cheap one does.

Still, many investors dabble at the low end of the stock-price spectrum. At Motley Fool CAPS, we note the investors who, more than half the time, rate stocks trading in the single digits, and we give them a saucy name -- "Pennies." Believe it or not, you'll find some of the best CAPS All-Star investors among them.

Pinching pennies
This week, we'll take a look at some of the low-priced investments that these All-Stars have identified as possibly the best and worst stocks. If the best investors who regularly scan this end of the market have singled out these companies, we might want to turn our umbrellas upside-down.

Here's a list of low-priced stocks that the All-Stars say will outperform the market:

And here's two they think will underperform:

As we delve into low-priced "pennies," we find that the All-Stars we've highlighted here are not the only ones who like -- or dislike -- the prospects these the companies face. Taseko Mines, for example, grabbed the attention of TMFBreakerDave -- the Fool's own David Gardner -- who reported that the stock surfaced as his Stock of the Day and that he uses such picks as an opportunity to learn.

It also attracted highly rated texn2, who noted in his bull pitch that the company's metal reserves position it nicely for a future run:

The increase in TGB Copper-Molybdenum mining reserves is a real bonus amidst rising prices. Gold has bottomed and will continue its seasonal rise into a strong January. High oil prices and uncertainty will further strengthen gold prices. Earnings will accelerate. TGB is a premier small cap mining company with experienced management and maintains some of the best gold/copper reserves in the world. Once AUY finishes its purchase of NTO and MDG, the spotlight will be on who is next. TGB may be small potatoes now but it is a clear long term winner as Wall Street starts to find it.

On the other side of things, 4got4you -- and other CAPS bears -- have pointed out that Motley Fool Hidden Gems recommendation Flamel right now has only one product in production -- a predicament that creates a lot of risk:

This stock isn't doing so well right now. I hope it has a turn around. Only one product but it appears that it could be a very good thing for diabetes and hypertension. I like the product ...

If it is able to break through with its other drugs or technologies, Flamel could be a big winner. But without much visibility, it's also not surprising there's some negative sentiment here.

Make some change
There you have it -- some of the top CAPS investors giving their reasons why these cheap stocks may or may not be a good investment. What do you think? Should we fill up the change jar with them, or should we ignore 'em like a discarded coin on the street? You don't have to flip a coin with the completely free Motley Fool CAPS investor-intelligence community. Your opinion makes just as much cents -- er, sense -- as any other investor's.

Sign up today, and see how you can benefit from a community of investors helping investors beat the market.