Making Cents in Penny Stocks

The 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 best ignored. Though 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 have praised. If the best investors regularly scanning 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 most of these companies are generally liked by the CAPS community, as indicated by their ratings of three stars or better.

Coal to Newcastle
Getting TV, phone, and Internet service is a lot more competitive than it used to be, and the choices consumers have available from cable companies, the telcos, and satellite providers are more diverse than ever. That has presented more of a challenge to the cable companies like Comcast (Nasdaq: CMCSA), Time Warner (NYSE: TWX), and Cablevision, all of which reported substantial loss of customers in the third quarter of 2007. According to the trade magazine Cable & Broadcasting, five of the top U.S. cable operators lost more than 200,000 basic subscribers that quarter.

Arris Group, which provides equipment to the cable operators, has been dragged down as a result. Its largest customer, Comcast, was expected to reduce purchases from Arris in the first quarter of 2008, which certainly won't help Arris with investors.

While the company may be hurting after the immediate earnings drop, investors like CAPS player SBeren know that if Comcast wants to remain competitive, it's going to have to upgrade its systems with equipment Arris sells. That's good for investors looking out over the longer term:

In order to remain competitive with Verizon's Fios, Comcast has to adopt this company's tech, which allows for selective streaming of channels to save bandwidth. Both Comcast and [Arris] reaffirmed this rollout, which is in its early stages. When the market will see larger/more lucrative orders coming Q2 of '08, confidence in earnings growth will move this above current valuations.

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