5 High-Star, Low-Priced Stocks

There's no way around it. Investors, in general, love the idea of owning low-priced stocks -- say stocks trading for less than $10 -- as opposed to ones priced higher. For example, just mention the $110,000 price tag on a single share of Berkshire Hathaway, and there's a good chance you'll find someone calling it too expensive -- without knowing much about the company.

I think three things cause the love affair with low-priced stocks:

1. They are often considered dirt cheap.
2. They are linked with turnaround situations.
3. They are associated with small, obscure, and ignored companies.

Price means nothing
Here at the Fool, we do our darnedest to diagnose, prevent, and even cure the critical stock affliction known as "cheap-osis" -- the belief that a stock's per-share price, on its own, tells you whether a stock is cheap or expensive.

The truth is that through the use of splits and reverse splits, management can make the price of its shares literally anything it wants. That's the reason companies such as Goldman Sachs (NYSE:GS), Bear Stearns (NYSE:BSC), and Sears Holdings (NASDAQ:SHLD), whose shares are priced well above $100, might very well be bargains, while most penny stocks are too risky to buy at any price. It's the business valuation that counts.

The rules of high/low
Sadly, some incidents of cheap-osis will never be cured completely. So with that in mind, I'll try to appease investors suffering from incurable cases of the 'osis by searching for low-priced stocks that may also make some pretty good investments.

With the help of our lovely and incredibly talented assistant, the Motley Fool CAPS intelligence database, we'll screen for stocks trading for less than $10 and that also have CAPS ratings of four or five-stars. "High-star" stocks are investments that the CAPS community, in general, believes will outperform the formidable Mr. Market.

So, without further ado, let's shuffle up and deal. Here's this week's five-stock hand of high/low:

As always, try not to view these stocks as formal recommendations, but rather as ideas you may want to research further. As fellow Fool Rick Munarriz reminds us each year in his own search for low-priced blockbusters, stocks trading in the single digits are generally very risky for a variety of reasons.

But with that said, two stocks on this list, Crystallex International and CGI Group, might be worth some of your own Foolish due diligence.

Crystal cleared for clearance
In late October, Toronto-based Crystallex International commenced drilling at its Las Cristinas property in Venezuela. What is Las Cristinas, you ask? Well, with an estimated 13.6 million ounces of gold reserves, the property is regarded as one of the largest undeveloped gold deposits in the world. As you can tell, this is no small milestone for a small-priced stock.

Crystallex, which explores and produces gold primarily in Venezuela, signed a mining agreement that gave it the exclusive rights to exploit Las Cristinas, but the project hasn't been moving forward until just recently.

Uncertainty regarding Venezuelan President Hugo Chavez's mining policies has left Crystallex investors pretty anxious during the past several months. According to the company, however, there is nothing on Chavez's political plate that will have a negative impact on Las Cristinas.

One CAPS player, o2babull, also thinks this low-priced stock has some high-return potential:

"What do you get when you add the growing industrial demand of China and India, one of the largest gold deposits in the world, an unstable world political situation, and cheap labor of a third-world country? The opportunity to make a lot of money."

A low-priced stock that gets IT
CGI Group, one of the largest IT and business process service providers in the world, is another low rider that seems to be an attractive risk/reward proposition.

The Montreal-based company has been facing major headwinds lately, caused primarily by a decrease in revenue from CGI's biggest client, Canadian telecom giant BCE. Increased competition from consulting giants Accenture (NYSE:ACN) and IBM (NYSE:IBM) haven't exactly helped CGI's plight in securing contracts, either.

However, despite the challenges, it appears as though CGI is turning a corner as management steadily repositions the company to be less dependent on BCE. For the last quarter of fiscal 2006, CGI reported impressive cash flow from operations of $50.1 million, much of which was used to repurchase 8.4 million shares.

The Foolish conclusion
Despite our Foolish attempts to educate the investment public on cheap-osis, the allure of low-priced stocks is simply undeniable. The good news, though, is that there are indeed single-digit wonders out there that can make great investments, too.

So, if you really have a bad case of the 'osis and would like to find more good low-priced stocks for yourself, then head over to our Motley Fool CAPS community. It's completely free to sign up, and who knows & you might just find a low-priced stock that makes you a CAPS All-Star -- or even makes you rich.

See you next week, Fools. Until then, keep searching for prices that are low as long as you're also getting quality that is high.

Brian Pacampara likes cheap stocks of all shapes and prices but holds no position in any of the companies mentioned. Berkshire Hathaway is a Motley Fool Inside Value pick. The Fool's disclosure policy is always a great idea.