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 "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. 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

Coeur d'Alene Mines (NYSE: CDE  )

$3.33

****

tuffsledding

99.94

ShengdaTech (Nasdaq: SDTH  )

$9.31

*****

altitudeaddict

99.68

AFC Enterprises (Nasdaq: AFCE  )

$8.93

**

Rox6525

99.36

SMART Modular Technologies (Nasdaq: SMOD  )

$6.09

*****

esptheory

99.15

Qimonda  (NYSE: QI  )

$3.61

**

shabz

98.89

^Price when the outperform call was made.

As we delve into these low-priced "pennies," we find that in general, the CAPS community likes them, because most have ratings of four stars or better.

A heart of gold
Has the correction in gold and silver prices finally abated? Prices for the precious metals are about 20% below the highs reached back at the beginning of the year, but while they've fallen from their perch, it also seems that they are bouncing along now at the still-elevated levels from a year ago.

So, too, with the miners who dig deep for them. Coeur d'Alene Mines, Silver Wheaton (NYSE: SLW  ) , and Pan American Silver (Nasdaq: PAAS  ) all have declined, but to varying degrees. Though Coeur d'Alene has fallen about 30% since the start of the year, Pan American is just above breakeven. Yet even with silver production expected to hit record levels this year, according to the analysts at Barclays Capital, there's expected to be a surplus, which could push down pricing and perhaps tarnish the miner's progress.

Investors, however, are still bullish on its prospects. bucklebuck notes that, more than gold, which is primarily a monetary commodity, silver has industrial uses that will keep demand high.

There is demand for silver. It is a useful commodity, unlike gold. It is used widely in electronics, and high demand out of China should help.

CAPS All-Star mitleg points out that with two projects going into production, the outlook for the immediate future is favorable.

This stock presents some value. They have two major silver plays coming into production. The company has a low debt load and silver is a basic commodity. They are trading in the lower part of their 52 week range. Mineral stocks always have volatility, but I see a general upward trend.

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.

Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool's disclosure policy always wins the coin toss.


Read/Post Comments (1) | Recommend This Article (4)

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  • Report this Comment On May 23, 2008, at 11:47 AM, woodsgirl wrote:

    Silver Wheaton, SLW is NOT a mining company. They buy future silver produced by mines at a deep discount in exchange for cash up front, They don't have the expense of mining, just the silver. They are making more money every time they report. Doesn't anyone else think this is brilliant., Sorry if this post is a repeat, but the first one did not post. I suggest more research on this company. They have nothing in common with mining companies.

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