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, due to the numerous risks that low-priced stocks carry, these megamultibagger 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 it wants. That's the reason why a $100 stock like Cummins 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 that 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. That said, SeaChange International and TransGlobe Energy might be worth some of your own Foolish due diligence.

Change for the better?
The value investor in me never likes to see too much change within any of the industries I invest in. But, according to our CAPS community, SeaChange International is one company that's stirring the seas of change, rather than getting engulfed by them.

As the TV industry's leading supplier of digital server systems, SeaChange is regarded by our CAPS players as one of the best (and purest) ways to play the growing popularity of video on demand (VOD). Despite its small size, SeaChange has some pretty big relationships under its belt, selling to companies such as Comcast (NASDAQ:CMCSA), Verizon (NYSE:VZ), and China Central Television.

The stock entered the single-digit zone after disappointing Mr. Market last March, but as fellow Fool Anders Bylund noted, SeaChange's prospects seem to be intact. Additionally, all three Wall Street firms on CAPS covering SeaChange --Needham & Company, DA Davidson, and Ferris, Baker Watts -- also rate it an outperform.

CAPS All-Star talkingmonkey throws us a stock pitch on demand:          

TV will, IMHO, become more and more user defined as time goes on. Which   means more and more, "I want to watch what I want to watch when I want to watch it." ... VOD is here to stay and any company that wants to play the game is going to need to talk to the gatekeeper (SeaChange) to get in it and stay in it.

Cheap gas
TransGlobe Energy, an Alberta, Canada-based oil and gas producer, is another low rider for which our community has high hopes.

Unlike SeaChange, TransGlobe sports impressive profitability, with returns on assets, capital, and equity all above 20%. In addition, TransGlobe has grown its reserves at a compounded rate of 32% over the last six years, while cash flow has expanded at a 92% rate. Of course, when you couple the price of oil's meteoric rise with the fact that TransGlobe is the largest proportional holder of Middle East acreage relative to its market cap, those growth rates don't seem so far-fetched.

It's also important to note that TransGlobe's growth has been funded entirely from its cash flow and working capital, with the balance sheet standing debtless today. TransGlobe trades at an EV/EBITDA of just 5, so this oil stock might still be worth exploring.

CAPS All-Star tranc3 digs even deeper for us:

The management team is a shareholder's dream. Each executive has at least 20 years experience in the energy sector and have shown conservative spending and effective growth over the past 7 PROFITABLE years.... TransGlobe has great fundamentals, management, is small, and is HUGELY undervalued. What more could you ask for?

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. He owns no position in any of the companies mentioned. The Fool's disclosure policy is always in tip-top condition.