7 Low-Priced, High-Star Stocks

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, 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 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 Freeport-McMoRan (NYSE:FCX) might very well 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 investor-intelligence database, we'll screen for stocks that are trading at less than $10 and also have enough investment merit to earn a four- or five-star CAPS rating (out of five).

Without further ado:

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

Navios on the water
Dry-bulk shippers represented some of the hottest picks in 2007, but lately they've been among the most battered stocks around. Four-star shippers like Eagle Bulk, Genco Shipping, and TBS International (NASDAQ:TBSI) are down 13% to 25% in the last month alone on falling freight rates, providing Fools with some interesting turnaround possibilities. Of course, Navios Maritime Holdings, whose five-star rating has held up despite a 24% drop over the past month, might be a particularly attractive opportunity.

The recent drop in shipping rates, according to a Cantor Fitzgerald analyst, is being caused simply by Chinese iron ore users choosing to work through inventory before importing more of the commodity. If that's the case, then Greece-based Navios, whose success is especially levered to an active global economy, should be a good bet to bounce when demand eventually picks back up. Over on CAPS, the bullish arguments in support of Navios focus on its expertise in booming commodities (iron ore, coal, grain, etc.), its massive and relatively young fleet, and industry-leading profitability gained through its low-cost edge.  

Finally, Navios' most attractive selling point is probably, well, its current selling point. Despite sporting higher returns on equity (trailing-12-month) than the shippers mentioned above, Navios continues to trade at a notable discount to each of them on a price-to-earnings basis. To be sure, Navios has had a couple of earnings disappointments lately, but with Chinese iron ore importers expected to use up their supplies very soon, the stock is surely worth a closer look.

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

Last August, CAPS player f00lishinvestor shipped this Navios pitch throughout our community:

Dry-bulk shippers are going full-steam ahead due to voracious worldwide demand for steel, coal, cement, fertilizer, grains, iron ore, and so forth. Navios has one of the biggest fleets and they play the long-term charter game, so they have good earning visibility well into the future.

A more recent pitch from daisytheblacklab in December shared that sentiment:

China needs iron ore and other raw materials to feed its growth. The only way to get the stuff there from Latin America is by ship. There are not enough ships to carry all the stuff right now. ... NM is small, has great fundamentals, has high insider ownership. It doesn't get much better than this, IMHO.

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 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.