Making Cents in Penny Stocks

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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 or panned. 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:

Company	Price*	CAPS Rating	Player	Player Rating
ARYx Therapeutics	$9.03	***	ltmm	99.89
ABX Holdings (Nasdaq: ABXA)	$3.05	*****	tuffsledding	99.89
Move (Nasdaq: MOVE)	$2.11	*	uvcmodel2007	91.63

*Price when the outperform call was made.

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

Company	Price*	CAPS Rating	Player	Player Rating
Ambac Financial (NYSE: ABK)	$7.15	*	dinasourneil	99.90
Standard Pacific (NYSE: SPF)	$1.84	*	ltmm	99.89
Origin Agritech (Nasdaq: SEED)	$8.44	**	tuffsledding	99.89

*Price when the underperform call was made.

As we delve into the low-priced "pennies," we find that most of the companies, whether they are rated underperform or not, are generally not too well-liked by the rest of the CAPS community. Most are rated less than the average three stars.

On a wing and a prayer?
Overnight package delivery has helped catapult carriers like FedEx (NYSE: FDX) and United Parcel Service (NYSE: UPS) into the stratosphere, yet the third-largest carrier, DHL, has had a tough going here in the U.S., losing $900 million last year. While some analysts contend that DHL, which is a subsidiary of Germany's Deutsche Post, may end up selling off its domestic business, the company has said that it's commited to keeping itself in the U.S. market.  

Despite DHL's assurances, such speculation weighs on the operations of ABX Holdings, which derives nearly all of its business from DHL and operates the shipper's main air hub and package sorting center in Ohio. A dispute over reimbursement for expenses has the two in front of an arbitrator right now, and the uncertainty over which way the quarrel will be resolved has also been holding ABX back. Yet the two companies remain committed to each other -- DHL recently expanded their relationship, despite the expense dispute -- so there doesn't appear to be a divorce in the works anytime soon. In fact, the potential for a merger of the two firms persists.

Those points lead CAPS All-Stars like humvee5000 to see ABX Holdings as offering potential for easy gains.

I seldom am so bullish -- somewhere in the next 2 months - and it could be tomorrow -- this will be bought out by DHL backed company. Tiff between DHL and ABXA caused the stock to drop to 4. Dhl was mad that ABXA did not accept the 7.75 takeover bid when MS said it was worth 9 to 10. Now the stock is at 5. Will be a 50% gain easy! Downside is only what DHL can do as the largest customer to pressure ABXA into selling. and we're only half way there so give it some more patience, before you call out the green.

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 as much as anyone else's.