Making Cents in Penny Stocks

An occasional shower of pennies from heaven might do our bank accounts some good, but we Fools can't say the same for penny stocks.

The world of penny stocks is often full of manipulation and deceit, making it harder for investors to separate its few good offerings from the multitude better left ignored. Although some investors think cheaper stocks have a greater chance to appreciate, those stocks may be cheap for a reason. Indeed, a $20 stock may have even better chances of gaining value than a $0.20 one.

Still, many investors dabble at the low end of the stock-price spectrum. At Motley Fool CAPS, we award the "Pennies" title to investors who rate stocks trading in the single digits more than half the time. Believe it or not, you'll find some of the best CAPS All-Stars among those players.

Pinching pennies
This week, we'll look at some of the low-priced investments these All-Stars praised. If the best investors who regularly scan this end of the market have singled out these companies, we might want to turn our umbrellas upside-down -- or run for cover!

Here's the latest list of low-priced stocks with All-Star support:

As we delve into the low-priced "pennies," we find that the companies are well-liked by the CAPS community; most are rated three stars or better.

A condo-maximum problem
In the go-go salad days of the real estate boom, building condominiums could be thought of as a no-brainer: Putting up just about any building with rooms could sell. Corus Bankshares grew from its Chicago roots to bankroll primarily condo construction in Florida and California, but also in Las Vegas, Atlanta, New York, and Washington, D.C. These are not exactly the markets you want to be exposed to in real estate these days, but 75% of Corus loan commitments are in these markets.

That's resulted in some dismal earnings: $1.9 million, or $0.03 a share, for the fourth quarter, compared to $47.2 million, or $0.82 per share, in 2006. For the entire year profits were off 44% from the year before. Management says it's looking for an uptick in condo business in the first quarter, but it remains mindful of the seemingly worsening economic conditions. Just ask other condo builders like WCI Communities (NYSE: WCI), which has imploded as a result of the decaying condo market.

Player LuvABear suggests that Corus can recover because it has "little exposure to the housing mess" so that its 10% dividend yield makes it attractive still. Other top-rated CAPS investors aren't so sure.

All-Star player ddberg with a 97.97 player rating foresees widening problems in Corus' niche commercial real estate sector as well.

Has a significant commercial real estate portfolio (as a percentage of its entire loan business), particularly in condo-bubble areas like Las Vegas and Florida. If builders and developers start to (continue to?) struggle due to the continuing real estate swoon, write-offs will follow. This is probably somewhat priced into the stock already, but I would expect things to quickly get much worse if the commercial real estate business heads in the direction that everyone seems to be expecting.

However, as CAPS player PViddy noted at the end of last year, there is large insider ownership here and, despite the decline in the stock, no one is selling. In fact, at least one insider has been buying shares on the open market.

The Glickman family holds 30% of the shares. They haven't sold anything on the market this year. Other insiders are buying only, no selling. Company announced 5 million share repurchase program in October. ... Yes, they have condo loans in Florida. Even a worst case outcome there will not take this bank down. It is priced like it is going out of business, which it isn't.

With nearly three-quarters of the float sold short, this stock might be a candidate for a short squeeze. But, if the shorts have it right, PViddy and those insiders holding and buying could end up wrong.

Make some change
What do you think? Should we fill up the change jar with these penny stocks, or ignore 'em like a coin in the street? Consult our free Motley Fool CAPS investor-intelligence community, where your two cents count as much as anyone else's.