5 Low-Priced, High-Star Stocks

People just love the idea of an easy way to riches. Whether it's through technical analysis, blindly following the advice of talking heads, or rapid-fire day trading, investors often take precarious shortcuts to generate investment gains. Of course, another one of the more popular shortcuts is looking for low-priced stocks under the assumption that they could "pop" at any moment.

Unfortunately, this doesn't happen as frequently as one might hope, thanks to the numerous risks that low-priced stocks carry.

Nevertheless, the fascination with low-priced stocks probably persists for the following reasons:

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.

Through the use of splits and reverse splits, management can make the price of its shares literally anything they want. That's the reason a $100 stock like BASF (NYSE:BF) might very well be a bargain, while most penny stocks are too risky to buy at any price. It's the business valuation that counts most.

The rules of high/low
Sadly, though, some incidents of cheap-osis will never be cured completely. So, with the help of our lovely (and incredibly talented) assistant, the Motley Fool CAPS intelligence database, we'll screen for stocks trading at less than $10 which also have enough investment merit to earn a CAPS rating of four or five stars (five being the highest possible). "High-star" stocks are investments that the CAPS community, in general, believes will outperform the formidable Mr. Market.

So, without further ado, here's this week's list of low-priced, high-star stocks:

As always, don't view these stocks as formal recommendations, but rather as ideas you may want to research further.

With that said, Dyax Corp. is one interesting low-baller that might be worth some of your own Foolish due diligence.

A biotech bottom?
Despite watching its stock plummet more than 50% within the last year, Dyax Corporation is steadily building a loyal group of supporters within our CAPS community. And if you think these Dyax die-hards are just Fools with a bottom-fishing philosophy, further inspection would probably lead you to believe otherwise. The Massachusetts-based firm currently has no product revenues (yikes!), but of course, with a development-stage biopharmaceutical company, it's the pipeline that should be packing the punch. And according to our community, it packs a wallop.

Specifically, the hubbub surrounding Dyax is because of something called DX-88, the company's most advanced product, which is awaiting FDA approval in 2008. What is DX-88, you ask? Well, according to the company, it's a type of small protein that's being examined for its therapeutic effects in a few disorders, the most important of which is hereditary angioedema (HAE).

Without getting into the technicalities of HAE (because I can't!), it's basically a genetic disease that causes severe swelling of the skin and affects an estimated 80,000 people worldwide. The only approved treatments to date for HAE are steroids and general pain control, so naturally, Dyax believes that DX-88 should prove to be a huge moneymaker.

Partnership powered pipeline
Normally, my skeptical side would get the better of me and I'd attribute management's optimism to the regular babble that a lot of biotech firms like (or need) to engage in. However, there's one thing about DX-88 -- along with Dyax's other product candidates, for that matter -- that adds some substance to this small-priced stock. The company has made a lot of important friends.

My favorite thing about Dyax is its research alliances with larger, better-capitalized firms. It's common practice for small biotech companies to partner up with their bigger brethren, but I like the strategic nature of Dyax's relationships. For example, Genzyme (NASDAQ:GENZ) -- well-respected for its focus on rare, inherited disorders -- is Dyax's partner in the commercial launch activities for DX-88. In addition, agreements with firms such as ZymoGenetics, Trubion Pharmaceuticals, and Serono will all help Dyax sustain R&D spending on the rest of its 11 product candidates.

So, given these calculated partnerships, I'd say Dyax has substantial backing to actually complete the development of its ever-expanding pipeline -- or a good portion of it, anyway. More importantly for Fools, though, is that this is one low-priced stock that has a reasonable shot at the double-digit big time.

Now, in case my biotech expertise (or lack thereof) isn't good enough for you, here are three CAPS residents who all have short -- but sweet -- things to say about Dyax:

• CanadasFinest: "The drugs in the pipeline are about to make this stock soar."
• wincopr: "Great drug to be developed. Drug trials are passed, strong buy recommendation."
• y2kurtus: "A bet on Dyax is a bet that their late stage drug gets approved ... all or nothing."

The Foolish conclusion
Despite our Foolish attempts to educate the investment public about 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 also make great investments.

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. Within a few minutes, you'll have your own powerful pipeline of potent ideas.

For more CAPS-related Foolishness:

• Get Ready for the Fall?
• 6 Foreign Values With Star Power
• Wall Street's Wish List

Foolish contributor Brian Pacampara scours SEC filings to prevent cheap-osis and holds no position in any of the stocks mentioned. The Fool's disclosure policy is always a healthy check on reality.