Making Cents in Penny Stocks

If it rained pennies from heaven, as Bing Crosby once sang, a few storms 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 manipulation and deceit, it's often hard for investors to separate the few good companies residing there from the multitude best ignored.

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

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 look at some of the low-priced investments these All-Stars have praised or panned. 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.

All-Stars believe that these low-priced stocks will outperform the market:

And here's a list of those they think will underperform:

As we delve into low-priced "pennies," we find that the All-Stars we highlight here are not the only ones who like -- or dislike -- the prospects the companies face. E-communications provider Zix, for example, has attracted quite a following on CAPS, with some 40% of the investors who rated the company being All-Stars, only two of whom think it will underperform.

Similarly, almost one-quarter of the ratings of gold digger Crystallex International come from All-Stars. Almost 90% of those say it will beat the market. For example, Radioman101, who has a 98.87 player rating, noted earlier this year that Venezuela is its main target.

These guys are chomping at the bit to get started on the Las Cristinas project which is one of the largest undeveloped gold prospects in the world. Ignore all the rhetoric out of Caracas. KRY made their contracts with the Chavez government. It is a project already approved by the mineral agency. All KRY is waiting on is the environmental permit. Once that permit is issued, prepare for blast off.

That could mean investors might be waiting awhile, though, as Crystallex doesn't expect to begin production at Las Cristinas until the second half of 2009, even though a permit could be issued by the government within days. Moreover, the mine's ownership is subject to some debate, and when dealing with the mercurial Hugo Chavez, things can change in an instant. Yet should this mine, ahem, pan out, Crystallex will be sitting on one of the largest untapped gold mines in the world.

Make some change
There you have it -- some of the top CAPS investors' reasons why these "penny stocks" may or may not be a good investment. What do you think? Should we fill up the change jar with them, or ignore 'em like a discarded coin on the street? Consult our free Motley Fool CAPS investor intelligence community, where your opinion makes just as much cents -- er, sense -- as any other investor's.