Making Cents in Penny Stocks

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 title of "Pennies" 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. 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:

As we delve into the low-priced "pennies," we find that most of the companies on this list are generally well liked by the CAPS community -- most have ratings of three stars or better.

Causing a coronary in investors
Last September, shares in medical-systems maker Cardica soared nearly 50% on news that its coronary artery bypass device had successfully been used in surgery. Since then, however, shares have fallen by about half from their peak of $14.

The news that got investors' hearts pumping was followed by continued forecasts of earnings losses and some shipment delays caused by a need to fine-tune the manufacturing process. While revenue rose 54% last quarter, costs have nearly doubled. But the company has shipped more than 4,500 units worldwide, with some 850 units sold in the third quarter alone. Some investors, like top-rated CAPS All-Star TMFBreakerJava, think Cardica could be a prime buyout candidate for a company like Intuitive Surgical (Nasdaq: ISRG):

This company has a device that facilitates minimally invasive coronary bypass surgery in conjunction with the da Vinci robotic surgical system from [Intuitive Surgical]. Coronary bypass surgery is a large market in need of a less traumatic solution than the prevailing standard of care, which involves splitting the chest, stopping the heart and weeks of painful recovery.

This company's product facilitates the minimally invasive solution provided by the da Vinci robot which allows closed chest, beating heart bypass surgery with far faster recovery and much less post surgical pain.

Perhaps [Intuitive Surgical] will acquire them, but this is a promising investment with or without the acquisition

According to the American Heart Association, some 427,000 coronary artery bypass graft (CABG) surgeries were performed in the U.S. in 2004, putting it near the top of the list of most-performed surgeries. Although some other All-Star investors, like cysto, believe installing stents will be done instead of CABG, the Society of Thoracic Surgeons cites reports that seem to show CABG may be the better treatment, particularly for patients with two or more diseased coronary arteries.

Make some change
What do you think? Should we fill up the change jar with these penny stocks, or ignore 'em like a coin on the street? Consult our free Motley Fool CAPS investor-intelligence community, where your two cents count as much as anyone else's.