5 Low-Priced, High-Star Stocks

Buying stocks simply because they trade for less than $10 remains one of the "lowest" -- but most tempting -- forms of investing out there.

After all, nothing trounces Mr. Market quite like a $2 stock that moves into double digits over just a short period of time. Unfortunately, thanks to the numerous risks that low-priced stocks carry, these mega-multi-bagger returns don't occur as frequently as one would hope.

Price means nothing
Here at the Fool, we do our darnedest to diagnose and prevent 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; attractive or unattractive; a winner or a loser.

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 CNOOC (NYSE:CEO) might very well be a great opportunity, while most penny stocks are too wild to buy at any price.

Your weekly dose of sweet 'n' low
Sadly, though, some incidents of cheap-osis will never be cured completely. So, with the help of our 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 five stars.

Without further ado:

As always, don't view these stocks as formal recommendations, but rather as ideas you may want to research further. With that said, Hill International and Taseko Mines might be worth some of your own Foolish due diligence.

Take a HINT, Fool
As regular Fool readers know, two common reasons for bargain opportunities are when a company is too small to be noticed, or when it's classified as an uncommon "special situation." Hill International, a $176 million company that underwent a reverse merger with Arpeggio SPAC, looks like one of those prime candidates for market mispricing.

Despite Hill's single-digit price tag and micro-cap status, it is the largest independent construction management firm in the U.S., raking in a total of $197.5 million in revenue for fiscal 2006. Over the last five years, Hill's top line has grown at a compounded rate of more than 20%, driven by major construction overseas -- particularly in the Middle East, where nearly 40% of Hill's business is generated.

The stock is up more than 30% since going public last June, but with a PEG of 0.85, Hill's shares still seem reasonably priced. Throw in the fact that founder and CEO Irv Richter owns more than 60% of the company, and you've got a stock to keep your eye on. CAPS All-Star phonixed runs down Hill for us:

Hill International seems to be a great stock. 70 worldwide offices, major contracts with foreign governments, a contract with the U.S. government to reconstruct parts of Iraq on an indefinite time/supply basis, and a number of other indicators from the news reel: all of these factors added up equal a great future for the company.

Copper penny stock
Taseko Mines, a Vancouver-based copper mining company, is another stock that our community has high hopes for. In fact, many believe Taseko holds the key to low-priced prosperity.

Although Taseko's Gibraltar mine is already a 36,700-ton-per-day operation with a 21-year life, it's the company's Prosperity deposit that has our CAPS contestants so bullish. Prosperity is regarded as the largest untapped gold-copper deposit in Canada, having proven and probable reserves of 480 million tons. With global commodity consumption as voracious as ever, Prosperity (if it is, in fact, viable), should only benefit from higher gold and copper prices going forward.

Of course, forecasting resource moves isn't one of my Foolish fortes, so take that prediction for what it's worth. What is worth noting: Taseko's solid returns on capital, coupled with an EV/EBITDA of 6.4, have placed it on Joel Greenblatt's list to beat the market. CAPS All-Star saxonglass elaborates on what makes Taseko -- along with fellow low-priced five-star Northgate Minerals (AMEX:NXG) -- so magical:

A quiet little mining company -- one that satisfies the Magic Formula investing criteria with fellow miner NXG. Copper seems to be making another move up with estimates of use in China increasing and the production estimates going down. Good cash flow.

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. It's 100% free -- the lowest price you'll find anywhere.

Foolish contributor Brian Pacampara swallows a couple of 10-Ks each day to prevent cheap-osis and owns no position in any of the companies mentioned. The Fool's disclosure policy is always in tip-top condition.