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.

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 members.

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:

* Price when the outperform call was made.

Your two cents worth
It wasn't all that long ago -- maybe three weeks ago -- that it would have been unthinkable to use the phrase "penny stock" and "Citigroup" in the same sentence. Yet we've just witnessed the spectacle of yet another venerable Wall Street titan brought low by the credit crisis, with the taxpayers' money yet again ponied up without question to bail them out.

It's great to have friends in high places that can finagle pumping another $20 billion into your business, taking the potential for losses on some bad investments off your hands -- all the while not requiring any of the senior management that engineered this disaster to lose their jobs. Yet as CAPS member rlloydevans reminds us, you can't underestimate Citigroup's value as an investment at this time, precisely for those reasons.

I hate this stock, but it is beaten so low, and now Uncle Sam has stood behind it with cash and guarantees with oodles of digits. Uncle Sam is committed to making sure Citi survives in some form, which makes this a $10 stock at least-not the $5-$6 it is now. For a small gamble, this is a good one.

Having the wind at its back puts Chinese wind turbine maker A-Power Energy Generation in the running, even though it finds itself up against the likes of Siemens (NYSE:SI) and General Electric (NYSE:GE). CAPS member balabanovj finds A-Power attractive because it has some distinct competitive advantages.

APWR has a large and growing backlog of contracts and LOI's which will produce new contract announcements shortly. The company's core business, distributed power systems is itself growing at a blistering clip of roughly 50% per annum. The most compelling factor here is that they are the only publicly traded company allowed to fabricate and install these systems. The remainder are gov't owned, and are not very competitive. This gives APWR a virtual lock on this segment of their business, barring entry from any would be competitors in the private sector. Then there's wind power, which is new to them and presents a bit of an unknown to investors. APWR, through their strong government affiliations has received preferential benefits and support for their new venture.

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? It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Consult our free CAPS investor-intelligence community, where your two cents count as much as anyone else's.