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, so it's hard 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 does.

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 devote more than half of their picks to rating stocks trading in the single digits. 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.

Here's the latest list of low-priced stocks with All-Star support:

Company

Price*

CAPS Rating (5 Max)

Player

Player Rating

Exelixis (Nasdaq: EXEL  )

$8.28

****

scampbel131

99.74

Webzen (Nasdaq: WZEN  )

$4.37

****

chicachick

97.74

Quantum Fuel Systems Technologies (Nasdaq: QTWW  )

$2.54

**

packerfan97

97.57

Denison Mines (AMEX: DNN  )

$7.84

*****

zygnoda

95.11

Abraxas Petroleum (AMEX: ABP  )

$5.15

*****

binv271828

94.98

*Price when the outperform call was made.

As we delve into these low-priced "pennies," we find that the CAPS community has bestowed four-star or better ratings on most.

Start me up!
Quantum Fuel earlier this year dumped the business that supplied parts for GM (NYSE: GM  ) vehicles and turned its focus to propulsion, solar, and battery systems. It also unveiled a sleek, new premium sports sedan featuring Quantum's hybrid plug-in electric vehicle architecture, which it will be manufacturing in conjunction with Fisker Automotive. Move over, Prius -- hello, Fisker!

CAPS All-Star Sqwii finds that the mix of technologies at Quantum gives it an advantage in strengthening its potential.

[Quantum] represents one of the best ways to invest in the Hydrogen infrastructure. [Quantum] has a diverse product line in Hydrogen Fuel Cells, Q-Drive systems (Advanced battery technology), Solar Power, and more. Recent contracts further strengthen [Quantum]'s future.

Bubbling up
In the first quarter of this year, Abraxas Petroleum's revenues jumped about 90% over the year-ago period, and then shares  went higher when the company announced in April that it had discovered natural gas in one of its South Texas wells. Even with the wider loss realized as a result of its hedging activities, CAPS investor CynO1113 finds its improved financial condition -- on a stand-alone basis without its minority interest in Abraxas Energy -- to be a solid foundation to build on: "A Good buy on a Texas oil stock. With zero debt & improved management, there's nowhere to go but up for Abraxas."

Game on!
Korean video-game maker Webzen has been generating buzz for Huxley, its massively multiplayer online first-person shooter (MMOFPS). Set to launch later this year, first for the PC and then for the Microsoft (Nasdaq: MSFT  ) Xbox 360, it seems to have players -- let alone investors -- torn over its potential. Says CAPS investor videogamestocks:

I'm so on the fence about if Huxley will be any good. I made some caps off this pick. Pulled out a few days ago ... and jumping back in now that I read reliably that Huxley is coming out on the 360. I thought that these gains were a little silly for a MMO on the pc that has a 80% chance of flopping. But an MMO/FPS on the 360 is the real news. The kids gotta stop playing Halo 3 one day, and they might as well pay a monthly fee to play an MMO/FPS where they can level up and grief newbs with their uber gear while cursing into the headset like adults. ... Genius.

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.

Microsoft is a Motley Fool Inside Value selection. Exelixis is a Rule Breakers pick. The Fool owns shares of Exelixis. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey wants a Fisker car but 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.


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