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 for less than $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 identified 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 to catch them!

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

These three companies are low-priced, 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
An immediate catalyst for up-and-coming VoIP provider 8x8 will be today's inclusion in the small-cap Russell 2000 index. The benchmark's annual reconstitution often creates buying pressure for stocks of those making the list, as investors anticipate the huge influx of institutional cash from mutual funds that track the index.

Regardless of what 8x8 does today, there are plenty of fundamental reasons to expect it to continue driving higher. Indeed, it wants to do for cloud-based communications what Cisco (Nasdaq: CSCO) has done for terrestrial, wired telephony. From acquisitions to competing against Rackspace (NYSE: RAX) to partnerships with Level 3 Communications (Nasdaq: LVLT) to breaking into the government-accounts market, 8x8 wants to be known as more than just a Skype wannabe.

Thus far, the strategy is paying off, with revenues and profits expanding and free cash flow generation picking up steam. CAPS member memberofthetribe finds that all those factors make it the Everyman's cloud provider: "solid, rock solid. high margins, cash, stable growth, loyal ceo and cto, killer mobile integrations across platforms, caters to SMB very well - will bring them into the cloud while the large firms cater to the giant enterprises...like cloud for the masses, and their voip core offering crushes vonage."

Add 8x8 to the Fool's free portfolio tracker, and then head over to the 8x8 CAPS page and tell us whether you think it's ready to dial in to more growth.

Win some, lose some
Drug developer Lexicon Pharmaceuticals looks like it's going the other way as 8x8, with losses widening last quarter and revenues from partnership payments falling by half. It's recruiting participants for a mid-stage phase 2b trial on its lead drug candidate, LX4211, with the ultimate goal of treating diabetics while helping them lose weight -- since being overweight is a big risk factor for getting type 2 diabetes. Lexicon has had positive results in early-stage trials, but there's still a long way to go till it can reach a market for its therapy.

In the meantime, it will have to rely on partners such as Bristol-Myers Squibb (NYSE: BMY) and Roche to carry it, but investors will want to watch out for its history of dilutive share offerings. In the just-reported quarter, it had roughly double the share count it had a year ago.

There's nothing on the horizon right now to light a fire beneath the stock, but CAPS members are generally supportive of its prospects for growth. More than 92% of those rating the pharmaceutical see it outperforming the market indexes.

If you're interested in learning about Lexicon's progress, add its stock to your watchlist and gain access to all the Foolish news and analysis about the drug developer.

A good bet
Rubicon Minerals won't need gold to hit $4,000 an ounce to catapult itself ahead (though that would be nice). It's instead anticipating the results from a preliminary economic assessment of its Red Lake district F2 project. Rubicon will offer up results from its bulk milling samples that ought to shed some light on the true grade of its reserves.

Investors will be watching whether the report overcomes the disappointment Rubicon experienced earlier this year, when its consultant on the project scaled back by 10% the inferred resource estimate and then sliced its high-end estimate of F2's total geological potential to 9 million ounces of gold, down from its initial range of 13 million to 16 million.

CAPS members are giving Rubicon the benefit of the doubt, with 97% of those rating the gold miner believing it will outperform the broad market averages. You can tell whether the miner is succeeding by adding the stock to the Fool's free portfolio tracker 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.