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:

The above three companies may be low priced, but that isn't necessarily enough to suggest that 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
It has joint projects under way with Intel (Nasdaq: INTC). It's targeting enterprise-level customers for its storage business. And it won an important ruling in the patent infringement case that Rambus (Nasdaq: RMBS) brought against it. Despite all that, shares of memory chipmaker Micron Technology have pulled back 20% from their recent highs, even though they're still some 20% above where they started the year.

Even as analysts expect a big drop in earnings this year, they're expecting profits to come back strong, doubling in 2012. Considering where it's priced, and the long-term earnings growth expectations, Micron is looking undervalued these days.

CAPS member ruinas thinks the technology leader has the right stuff to excel in the future.

right technology at the right time, but stock is down with the market and the sector, in particular. Expect recovery with continued profits, exceeding estimates, to 14-17 range.

Add Micron to the Fool's free portfolio tracker then head over to the Micron Technology CAPS page and chip in your opinion about where it's heading.

A tasty opportunity
Although it took a bit of a breather after reporting blowout earnings (well, compared to expectations), Spectrum Pharmaceuticals looks poised to break through the double-digit barrier again soon enough. Its $0.08-per-share earnings last quarter were well ahead of what Wall Street was anticipating, underscoring the validity of its treatment for the side effects caused by chemotherapy. Fusilev's revenue came in at $23 million, up from just $100,000 a year ago, while sales of lymphoma drug Zevalin were up 56% from last year.

Sure, Biogen Idec and Cell Therapeutics (Nasdaq: CTIC) want to give it a run for its money, and there are generic alternatives to Zevalin, so it's possible that Spectrum isn't as cheap as it appears. However, the FDA gave Spectrum expanded approval on Fusilev to treat colon cancer patients, so there seems plenty of room up above for it to move.

CAPS member almostgem is impressed with the amount of money Spectrum is spending on R&D. You can follow along by adding the pharmaceutical to your watchlist.

A good bet
Someone needs to share the secret of growth with communications equipment provider Tellabs, which had a disappointing first quarter and a sour outlook for the second.

Nearly all of the advanced networking gear segment is suffering from a bit of upheaval. Cisco (Nasdaq: CSCO) and Finisar both sit 37% and 50%, respectively, off their 52-week highs. Tellabs has hit similar lows.

Yet Tellabs investors can look forward to better top-line growth, since mobile Internet, with its insatiable desire for more data, requires wireless operators to upgrade their infrastructure. That's undoubtedly one of the reasons why 97% of the CAPS All-Stars who've rated the communications equipment provider think it will go on to beat the broad indexes.

You can tell whether Tellabs is succeeding by adding the stock to your watchlist and following along on its progress.

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.