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, due to 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 repulsive, a winner or a loser.   

Through the use of splits and reverse splits, management can make the price of its shares whatever they want. That's the reason a $180 stock like Apple (Nasdaq: AAPL) might be a great opportunity, while most penny stocks are too wild to buy at any price.

Alleviate symptoms with CAPS
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 four- or five-star CAPS rating (out of 5).  

Without further ado:

Company

Price
(at last close)

Market Cap

Industry

CAPS Rating
(of 5)

Grey Wolf (AMEX: GW)

$9.44

$1.69B

Oil and Gas Drilling

*****

Internet Initiative Japan (IIJI)

$9.42

$778M

Internet Service Providers

*****

ShengdaTech (Nasdaq: SDTH)

$8.26

$448M

Specialty Chemicals

*****

North American Palladium (AMEX: PAL)

$5.67

$464M

Precious Metals
and Minerals

*****

Exelixis (Nasdaq: EXEL)

$5.93

$623M

Biotechnology

****

First Marblehead (NYSE: FMD)

$3.88

$384M

Credit Services

****

Level 3 Communications (Nasdaq: LVLT)

$3.71

$5.76B

Communication Services

****

As always, do not view these stocks as formal recommendations, but rather as ideas to research further. With that said, ShengdaTech might be worth some of your Foolish due diligence.

How low can this nano go?
If you plan to make profits in the land of the low-priced, eventually you'll have to bet on stocks that Mr. Market has soured on. Judging from its long-held perfect rating in CAPS, Chinese chemical maker ShengdaTech might be a particularly wise choice.

Despite being off nearly 50% from its 52-week highs, 99% of CAPS All-Stars who've rated the stock still like it to outperform -- for interesting reasons.  

Shengda is a leading provider of nano-precipitated calcium carbonate (NPCC), which, according to several players, is a low-cost, high-quality material used to produce tires, paper, and paints.

That may not sound exciting, but there's nothing boring about its financials: Over the past four years, Shengda has consistently posted returns on capital in the mid-20% range. Additionally, the company's current financial position is solid with about $18 million in cash and no debt.

Shengda currently trades at a paltry PEG ratio of 0.57. Of course, baked into that price are some pretty lofty growth assumptions -- roughly 23% for the next five years -- so Fools should proceed with care. But if the global demand for Shengda's products is as voracious as our CAPS community believes, it's probably just a matter of when, not if, the stock climbs back to the double-digit big time.

But don't take my word for it. Let's hear what a couple of CAPS players have to say.

SonOfWarren sees a world of opportunity:

Profit margins are growing, they are continually innovative, and the fact that they just brought on an English speaking sales staff shows me that this company is going to expand globally in a major way very soon. They have very little debt, but the price is depressed right now because people are afraid of a possible bubble.

In March, rickyhansen5 talked price:

SDTH is a great company that is positioned in an area of extreme growth. Right now the stock is down because the overall economy is gloomy, but I find it to be one of the best values on the board. The p/e is low, lots of cash, big profit margins, and a very intuitive development staff. They are always coming up with new things.

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 be 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 to our Motley Fool CAPS community. It's 100% free -- the lowest price you'll find anywhere.   

First Marblehead is a Motley Fool Inside Value recommendation. Exelixis is a Rule Breakers selection. Apple is a Stock Advisor pick. The Fool owns shares of Exelixis. Try any of our Foolish newsletters today, free for 30 days.

Foolish contributor Brian Pacampara swallows a couple of 10K's each day to prevent cheap-osis and owns no position in any companies mentioned. The Fool's disclosure policy is in tip-top shape, as always.