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 a short period of time. Unfortunately, because of 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 it wants. That's the reason a $100 stock like Core Labs (NYSE:CLB) 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 four or five stars. Five is as good as it gets in CAPS.

Without further ado:


Price (as of 8/04/07 close)

Market Cap (in millions)


Assisted Living Concepts (NYSE:ALC)



Long-Term Care Facilities

Entravision Communications (NYSE:EVC)




Metalico (AMEX:MEA)



Steel & Iron

Kodiak Oil & Gas (AMEX:KOG)



Oil & Gas Drilling

Augusta Resource (AMEX:AZC)



Metals & Minerals

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

Low-level concept
The sweetest thing about a market meltdown is when one of your favorite stocks that was previously flying too high to buy nosedives right into your "trigger zone." Assisted Living Concepts, a special situation that I've liked for quite some time, has dropped to the point where I'm really getting interested.

I first became aware of ALC when assisted living operator Extendicare -- whose headquarters are right next door to me here in Markham, Canada -- announced its plan to spin off the Milwaukee-based subsidiary. ALC is one of the largest operators of long-term-care facilities in the U.S., with more than 200 residences, so it naturally stands to benefit from the aging population.

ALC began trading in November 2006 at $8.58 and reached a high of $12.54 last April, but it has since fallen back into single-digit territory (quite possibly because of a combination of general market malaise and the indiscriminate selling typical of many spinoffs). With management recently buying back shares at an average price of $10.70, ALC is enticing. Additionally, all four Wall Street firms on CAPS that cover Assisted Living  -- Ferris, Baker Watts, RBC Capital Markets, Lehman, and Jefferies -- rate it an outperform.

CAPS player BigKOTU shows us what living is all about:

Thriving sector. (Long-term care facilities) are making money hand over fist by keeping costs down (i.e. compensation, employee benefits). Additionally, it is quite expensive for those who need care, whether it is from their own pockets or government subsidized. ... over the long term, I can't see how this company fails to profit.

Heavy Metalico
Though the name Metalico conjures up head-banging and thrash metal, the New Jersey-based firm is a recycler of scrap metal, and has its own set of devoted groupies. With 82 CAPS players calling for outperform (and not a single bear in sight), Metalico is an overwhelming fan favorite.

According to our community, Metalico offers a nice way to play the trend of increasing "green" initiatives, as higher metals prices are bringing recycling back into the forefront. Just this past March, Metalico was named a Green Power Partner by the Environmental Protection Agency. Over the past three years, Metalico has grown its top line at a compounded rate of 44%, while delivering double-digit returns on equity.  

The stock is up big year to date, but with today's 10% price drop -- caused by declining unit volumes in Q2 -- Metalico now trades at a forward P/E of 11.

CAPS player bluejohnnyd gets scrappy:

Metalico is tiny, and has a lot of room to cut expenses and raise margins. Over the past two years, the earnings have nearly doubled, and analysts are expecting a rise of about 25% next year as well. If this kind of growth continues, then it may be as little as half of its intrinsic value.

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, 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.