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. Because the world of penny stocks is often full of manipulation and deceit, it's hard for investors to separate its few good offerings from the multitude best ignored.
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 of the time. Believe it or not, you'll find some of the best CAPS All-Stars among those members.
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:
*Price when the outperform call was made.
Golden opportunity
Colorado-based gold miner Golden Star Resources has been something of a disappointment for investors, as operational difficulties and high costs continue to hamper its Ghana and West African mines. Yet with the sulphide processing plant completed and running, recovery rates jumped to 70% in the latest quarter, compared with 59% last quarter, an improvement that should serve to drive down its costs per ounce. The junior miner could be on track to live up to the confidence investors have shown in it.
CAPS member nuf2bdangrus recognizes the effect that cost inputs and the price of gold have had on Golden Star but sees it as a promising takeover play: "The juniors have been hit hard, but as the fundamentals for gold continue to be strong, [Golden Star] makes an excellent takeover target."
Not getting a charge
Like rivals Ener1 (AMEX: HEV) and Advanced Battery Technologies (Nasdaq: ABAT), lithium-ion battery maker Altair Nanotechnologies is in a race to charge the coming generation of green vehicles. The problem is that right now, Altair doesn't seem to know how to monetize its technology into a profit. The most recent quarter wasn't any different. Revenues dropped 38% and losses widened, but All-Star CAPS member sciencebzzt figures that if battery technology catches on as a way to power vehicles, Altair has a chance to make it big.
Altair makes and sells lithium ion batteries. That's the main reason they're on my list. Their insider ownership isn't particularly high and they don't look as obviously solid as the other companies on this list, but if lithium ion batteries become even half as important to the future of the auto industry as I think they will, Altair will do well. This stock has the potential to be either the biggest winner or the biggest loser on this list. Invest with caution.
Is it safe?
Aladdin Knowledge Systems, a provider of software security solutions, hasn't found the genie that can fix the recessionary environment it's operating in. In the most recent quarter, management lowered expectations for revenues and earnings and then followed that up a few days later with a big acquisition announcement. In a gamble to double the size of its eToken offering, Aladdin will be buying Secure Computing's SafeWord product line -- which is similar to eToken -- for $65 million. With VASCO Data Security (Nasdaq: VDSI) also reporting tough times, Aladdin's move takes on risk that may be difficult to manage.
The market hammered this Motley Fool Hidden Gems selection, but the cheap valuation it offered even back at the beginning of July was enough to attract CAPS member BoiseKen:
[V]alue buy on a [Hidden Gems] mini-cap. [D]own 50% in a couple months. [Price-to-earnings ratio] 8.38. 2nd quarter estimates aren't rosy, but [I believe] the market is over-reacting. I'll cap it and watch for a while.
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? It pays to start your own research on these stocks at Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Just head to our free CAPS investor-intelligence community, where your two cents count as much as anyone else's.
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