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, because of 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 Alliant Techsystems (NYSE:ATK) 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 7/20/07 close)

Market Cap (in millions)





Gas utilities

HealthGrades (NASDAQ:HGRD)



Staffing & outsourcing services




Foreign utilities




Communication equipment

Great Basin Gold (AMEX:GBN)




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

Highly-rated rater
Comedian Jerry Seinfeld once joked about how everyone likes to believe that their own doctor is "the best." Well, HealthGrades, the leading provider of healthcare ratings of hospitals, nursing homes, and physicians, can finally let us know just who's right.

Despite its size, HealthGrades is one of our community's favorite ways to profit from the rampant increase in consumer healthcare spending. About 3 million consumers visit HealthGrades' website every month to get the goods on healthcare providers, with insurance companies like CNA Financial (NYSE:CNA) using their services to evaluate business risk. HGRD has delivered compounded revenue growth of 42% over the last three years, while producing returns on capital of roughly 30%, so our Fools may be onto something.

The stock is up over 25% year-to-date, but with co-founder, President, and CEO Kerry Hicks continuing to own a moderate piece of the company, HGRD might have plenty of room to run. Additionally, all three Wall Street firms covering HealthGrades on CAPS -- Roth Capital, RBC Capital Markets, and MJSK -- also rate it an outperform.

CAPS player alphahorn gives HGRD a good grade:

Perfectly positioned to capitalize on consumer driven healthcare initiative underway in USA. As companies continue to shift to defined contribution and away from defined benefit plans, consumers will increasingly need cost and quality data. HGRD empowers consumers to make quality healthcare decisions.

Defensive investment
EFJ, an Irving, Texas-based supplier of wireless technologies, is another low-rider that our CAPS community has high hopes for.

EFJ leverages its engineering expertise in radio frequency (RF) applications to serve the homeland security and public safety markets, so our community likes it as a play on increased defense spending. Fueled by major contracts with the U.S. Department of defense and Sprint Nextel, EFJ has grown its top line at a compounded rate of 23% over the last five years -- though operating cash flow has been spotty. Of course, when your client base is as concentrated as EFJ's, lumpy earnings should be expected. 

The stock hasn't performed well over the past couple of years, but with established partners like CISCO, Intel, and Broadcom helping to strengthen its Secured Communications business, EFJ might be worth a closer look on CAPS.

Fellow Fool TMFBreakerTAllan expects good things, but urges investors not to be so wired:

Look for EFJI to win new contracts toward the end of 07 and into 08 as funding is approved and filters to the agencies that make the purchasing decision. Patience with this stock is warranted. However, volatility abounds with the share price of this small cap, so look for periods of no news and waning interest in this stock if you consider buying in.

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 10K's each day to prevent cheap-osis and owns no position in any of the companies mentioned. Intel is an Inside Value newsletter recommendation. The Fool's disclosure policy is always in tip-top condition.