Making Cents in Penny Stocks

The occasional shower of pennies from heaven might do our bank accounts some good. Alas, Fools can't say the same for penny stocks. They're often subject to manipulation and deceit, making it harder for investors to separate the few good offerings from the multitude best ignored.

Still, many investors enjoy dabbling at the low end of the stock-price spectrum. At Motley Fool CAPS, a "penny stock" is any stock trading under $10, and you'll find some of the best CAPS All-Stars regularly seeking out winning investments there. We identify them with a penny icon.

Pinching pennies
This week, we'll look at some of the low-priced investments the CAPS community has singled out as those with the best chances of success by bestowing four- and five-star ratings on them. We just might want to turn our umbrellas upside-down!

Here are three low-priced stocks enjoying high CAPS support:

These three companies may be priced low, but that isn't necessarily enough to suggest they'll have an easier time recording big gains. Low-priced stocks are often low-priced for a reason. We have to check and see what their catalysts for growth might be before diving in to the shallow end of the stock pool.

Your two cents worth
When expectations are so low, sometimes it's not hard to easily exceed them. That seems to be the case with Excel Maritime, a dry bulk shipper that many have given up on along with the rest of the industry. Analysts were looking for it to report a loss of $0.04 per share in the first quarter, but it surprised many by recording a loss of just a penny.

But many analysts still see severe challenges ahead. The industry's boom years caused a massive buying spree, with shippers putting in orders for new ships. Now the glut has depressed charter rates to the point where they're below what they were fetching even in the depths of the recession. Not even the commodities bubble is able to offset the difference.

Dry bulk player DryShips (Nasdaq: DRYS) had to restructure a $1.1 billion loan for one of its subsidiaries, no doubt to avoid the fate of Korea Line, which got swamped by debt and took down Eagle Bulk Shipping (Nasdaq: EGLE) in its wake.

What Excel investors might be looking at to separate their shipper from the rest of the fleet is the number of Panamax ships it has relative to overall fleet size. Rates in this class have been higher, and analysts project that could lead to an increase in EBITDA for Excel. CAPS member timclaason is looking for the rebuilding of Japan to provide a catalyst for the shipper:

[Excel] is down quite a bit over the last few weeks, but then again, the industry is down as well. The [Baltic Dry Index] is at historically low levels, and is sure to rebound once Japan's building efforts go into full swing, along with China's shift in import source. I believe this stock was undervalued at $4.50, and I still think it's undervalued in the high $3s.

Add Excel to the Fool's free portfolio tracker to see if it will capsize in the stormy waters still facing it.

A silver medal

Well, if there were a symbol of the commodities bubble, it might be the crazy prices silver was hitting for a while. After striking it rich at $50 an ounce, the air was let out of the gray metal's balloon, and it collapsed back down to a seemingly more reasonable $35 an ounce.

Such volatility is a trader's dream, but long-term investors can also capitalize on it by buying the shares of silver mining stocks when the market gives you silly discounts. After peaking at more than $11 a share, Hecla Mining now goes for less than $9; Coeur D'Alene Mines (NYSE: CDE) also trades 30% lower than its 52-week high. With production costs of just $3.36 an ounce in 2010, Hecla remains a tough, low-cost miner to beat, regardless of the price of silver.

With 94% of the more than 1,200 CAPS members rating Hecla believing it will outperform the broad market averages, it's apparent they believe the miner will continue its winning silver streak. Mine other opinions on the Hecla Mining CAPS page or add your own thoughts to the discussion.

No clouds in this shop's future
Like the shipping industry, the solar industry has been feeling the impact of an inventory glut and the tumult caused by countries slashing their support to the industry. All across Europe, and also in the U.S., tariffs that prop up the companies by keeping their costs down have been cut. Such actions caused Canadian Solar (Nasdaq: CSIQ) to stall after its Italian customers held back on making purchases to see just where government subsidies would land.

The Fool's Rick Munarriz humorously notes investors need "seatbelts and crash helmets" to ride the volatility of the industry, but he also points out that JA Solar has been one solar shop that has proven consistently profitable. And CAPS member Stocklove21 thinks the market is misjudging the markets that will propel JA higher:

nuclear fears, wind power moving parts, and high priced oil will drive solar to huge heights in the next few years. USA, India, and China have just begun to build in solar. And they will drive the market going forward--not Europe.

With nearly 1,700 CAPS members weighing in, 96% see JA Solar beating Wall Street's expectations. Follow along by adding the stock to your watchlist.

Penny for your thoughts
Should we fill up the change jar with these penny stocks, or ignore 'em like a discarded coin on the street? Consult our free CAPS investor-intelligence community, where your two cents count as much as anyone else's.