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, due to the numerous risks that low-priced stocks carry, these mega-multibagger 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 Allegheny Technologies (NYSE:ATI) 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:


Price (as of 6/22/07 close)

Market Cap (in millions)


Newpark Resources (NYSE:NR)



Oil & gas services

KapStone Paper and Packaging (NASDAQ:KPPC)



Paper products

Secure Computing (NASDAQ:SCUR)



Computer peripherals

KMG America (NYSE:KMA)



Life insurance

Golden Star Resources (AMEX:GSS)




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

Park here?
In CAPS, you'll find a ton of ideas on how to cash in on the supertrend of rising oil prices, but Newpark Resources, a provider of environmentally focused oil and gas solutions, is one of our community's safer ways to play.

Newpark operates in three different service segments, but it's the E&P waste disposal business that I find most interesting. Despite Newpark's size, it's one of the dominant players in this small but important niche, disposing of waste exempt under the Resource Conservation and Recovery Act (RCRA). Newpark essentially reduces the waste that its customers are responsible for, and so should benefit regardless of where oil goes (well, theoretically, anyway).

Newpark is up nearly 40% since last June, but with PEG of 0.50 and hefty insider purchases over the past year, the shares may still offer some value. Additionally, all four Wall Street players on CAPS covering Newpark -- Matrix Research, Janco Partners, First Analysis, and the skee-daddy himself, Jim Cramer -- also rate it an outperform.

CAPS player Zikar keeps it real and admits his low-priced affliction:

I have so many reasons to dislike this stock. Their debt is massive compared to cash on hand, their ROE is in the negative, and diluted EPS is -35 cents. Why, then, am I giving it the green thumb? Growth, and a play on the oil services industry, cheap-osis style.

Low-grade fever
KMG America, a Minnesota-based life insurance company, is another low-rider that our community has high hopes for.

Late last March, shares of KMG plummeted more than 40% when the firm's outlook was downgraded by ratings agency A.M Best. A.M. cited premium increases at one of KMG's subsidiaries, Kanawha Insurance, as the primary reason for the change. A downgraded outlook is hardly good news for any firm, but for enterprising investors, it could mean an opportunity to pick up shares on the cheap. According to our CAPS community, that's exactly the case with KMG right now.

Despite the negative outlook, Kanawha's A- rating remains intact, giving CAPS players reason to believe that a turnaround is manageable. Of course, you'll have to decide for yourself whether the bet is worth it, but with a current price-to-book (p/b) of 0.64 -- versus a historical p/b of above one -- there's plenty of upside if CEO Kenneth Kuk pulls something off.

CAPS All-Star saxonglass chimes in with a positive outlook:

It should recoup a lot of the damage it sustained on the downgrade in March. It's already starting to shake some of it off. That really stirred up the seeds of change, and they are making a lot of changes to bring them out of this hole.

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 10Ks each day to prevent cheap-osis and owns no position in any of the companies mentioned. Secure Computing is a two-time Motley Fool Rule Breakers recommendation. The Fool's disclosure policy is always in tip-top condition.