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.

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 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.

Your two cents’ worth
Thanks for nothing. After all the suspense and drama we endured while waiting for new Treasury Secretary Tim Geithner to unveil his anticipated plan to save the banking industry, the markets tumbled in the apparent belief that it's not going to help all that much. Despite Geithner's willingness to spend some $2 trillion to shore up the system, the vagueness of the plan leaves doubts about its efficacy. That caused banks like Bank of America and Citigroup (NYSE:C) to plunge more than 15% as the market's skepticism mounted.

Top-rated CAPS All-Star member TSIF had hoped the government would generate a plan that was meaningful and could actually prop up the financial system when he rated Bank of America to outperform the market:

Playing the banking spike here....one of three that I think will get the most benefit if the Feds/Timothy Geithner can come out with anything meaningful....but Bank of America could benefit from a Good Bank/Bad Bank scenerio, or benefit long term if we can get more liquidity into the market by large credits to home buyers and reorganizing homeowner debt.

A coin toss?
As major natural-gas users like Dow Chemical (NYSE:DOW) rein in their business in the face of a worsening economy, their demand for natural gas will also fall. According to the U.S. Energy Information Administration, industrial gas consumption is now expected to fall by more than 5% this year, while overall gas consumption will decline by 1.3% in 2009.

That could prove a problem for natural gas producers like Sandridge Energy that otherwise look like they're poised to pop, but now have to cut back on their own spending as a result. CAPS All-Star cknapp01 believes the company is undervalued:

I got in because it was way undervalued, and so far as been a smart move. Not sure how much higher it will go, but long term I think I might hang on to this stock.

Penny for your thoughts
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 on 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. Consult our free CAPS investor-intelligence community, where your two cents count as much as anyone else's.