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:

Company

Price

CAPS Rating

Player

CAPS Rating

Cytomedix (AMEX: GTF  )

$3.82

*****

altitudeaddict

96.85

CDC (Nasdaq: CHINA  )

$7.38

****

zennousha

96.13

Syntax-Brillian (Nasdaq: BRLC  )

$4.51

***

mjeffries

95.49

They also believe that these stocks will underperform:

Company

Price

CAPS Rating

Player

CAPS Rating

Level 3 Communications (NASDAQ:LVLT)

$3.03

***

Aldecoa

95.46

Introgen Therapeutics (NASDAQ:INGN)

$3.79

*

ltmm

99.59

Nautilus (NYSE:NLS)

$6.43

**

archipeldugoulag

99.91

Source: CAPS and Yahoo! finance. Prices are as of close on 10/31/07.

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. Roughly 28% of the players rating flat-panel TV maker Syntax-Brillian, for example, are considered All-Stars, and fewer than one in five think it will underperform.

Highly rated CAPS investor cubanstockpicker lists a number of metrics to support his argument that with Corning (NYSE: GLW  ) no longer cracked, Syntax-Brillian should prosper. (We've added dollar symbols below.)

This stock has been mauled this past year. I think we can call a close enough to bottom. With Corning getting their act straight and filling demand for the glass making side of the LCD market it should ease production for BRLC.

BV/SHARE $3.51
D/E 0.248
Cash $28 million
debt $78 million (compare that to homebuilders)
P/S 0.61
P/B 1.30
Forward P/E 4.86
Growth 243.20%

Even if they just get a small piece of that percentage of growth right, they will beat out any estimates left from being burned so long.

As CAPS player jdnoles notes, Brillian's products should be showing up everywhere.

Too many shorts, monster sales, takeover candidate, now in Costco, HUGE revenue growth and over $1 billion in sales next year.

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.

Sign up today, and count the difference that investors helping investors beat the market can make for you.


Read/Post Comments (5) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 02, 2007, at 12:06 AM, youarethefool wrote:

    INGN. a 5,000,000 short fund desparately needs publications to bash this because they have failed to cover and time is closing in on the BLA filing and the shorts are already out $20,000,000.

    http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_I/threadview?m=mm

  • Report this Comment On November 02, 2007, at 12:06 AM, youarethefool wrote:

    INGN. a 5,000,000 short fund desparately needs publications to bash this because they have failed to cover and time is closing in on the BLA filing and the shorts are already out $20,000,000.

    here is a brief of company success to date...

  • Report this Comment On November 02, 2007, at 12:12 AM, youarethefool wrote:

    INGN - shorts running scared.

    goto yahoo board

    ticker INGN

    look for post subject =

    ► QUICK REVIEW

  • Report this Comment On November 02, 2007, at 12:18 AM, youarethefool wrote:

    INGN

    appears that Rich Duprey couldn't provide any really substantial detail as to why he believes that INGN (a biotech discovery company about to file their first BLA) was rated underperform - - probably fears getting a "cease and desist" notice or, becoming entangled in an s.e.c. investigation on NSS, bashing and the like by some criminal minded shorters.

  • Report this Comment On November 02, 2007, at 12:27 AM, youarethefool wrote:

    INGN

    Americans pay roughly $20,000 to travel there and get treated

    link available on yahoo finance board subject ► QUICK REVIEW

    The company likely to win approval of the first gene-therapy drug is Introgen Therapeutics Inc.,

    link available on yahoo finance board subject ► QUICK REVIEW

    CANACCORD/ADAMS PRICE TARGET $11 FOR DECEMBER 2007!

    link available on yahoo finance board subject ► QUICK REVIEW

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