5 More High-Star, Low-Priced Stocks

There's no way around it. Investors will always love wild penny stocks. I mean, what's not to love? They're small, largely ignored by Wall Street, and seem like such a cinch to double, triple, or even quadruple in value. How many of us really believe that Berkshire Hathaway's $110,000-per-share stock will provide multibagger returns over the next five years? Anyone?

Unfortunately, the reward of buying low-priced stocks is almost always negated by the risk of holding unproven, unprofitable, and speculative businesses.

Nevertheless, this fascination with low-priced stocks probably has to do with the following:

1. They are often considered dirt cheap.

2. They are linked with turnaround situations.

3. They are associated with small, obscure, and ignored companies.

Price means nothing
Here at the Fool, we do our darnedest to diagnose, prevent, and even cure 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.

Through the use of splits and reverse splits, management can make the price of a company's shares literally anything they want. That's the reason a company like Deutsche Bank (NYSE:DB) -- with shares priced well above $100 -- might very well be a bargain, while most penny stocks are too risky to buy at any price. It's the business valuation that counts most.

The rules of high/low
Sadly, though, some incidents of cheap-osis will never be cured completely. So, with the help of our lovely (and incredibly talented) assistant, the Motley Fool CAPS intelligence database, we'll screen for stocks trading at less than $10 which also have enough investment merit to earn a CAPS rating of four or five stars. "High-star" stocks are investments that the CAPS community, in general, believes will outperform the formidable Mr. Market.

So, without further ado, let's shuffle up and deal. Here's this week's five-stock hand of high/low:

As always, don't view these stocks as formal recommendations, but rather as ideas you may want to research further. As fellow Fool Rick Munarriz reminds us each year in his own search for low-priced blockbusters, stocks trading in the single digits are pretty risky for a variety of reasons.

But with that said, two stocks on the list, NovaMed and Nabi Pharmaceutical, might be worth some of your own Foolish due diligence.

Someone call an ambulance
Chicago-based NovaMed, a health-care services provider, is a low-priced stock that's steadily gaining support from our CAPS community. The company's main operating strategy is to acquire, develop, and operate ambulatory surgery centers (ASCs) by partnering with physicians throughout the U.S. So far, the strategy seems to be working.

For each of the past three years, NovaMed has grown operating income more than 40% on average while posting consistent same-facility sales growth in the double-digit range. Most recently, the company reported a 33% increase in third-quarter income, fueled primarily by the growth in total surgical procedures performed.

During Q3, NovaMed was also busy acquiring majority interests in four more surgery centers -- one of which is a larger, multi-specialty center located in Tennessee. Obviously, this translates into a large number of operations for such a small-priced stock. If specific health-care trends hold -- that is, if ASCs continue to capture a larger share of the ever-growing number of surgical procedures taking place in the country -- then NovaMed stands to profit substantially.

Taken all together, NovaMed seems pretty deserving of its five-star rating. CAPS player dequeant sums up the investment thesis in five words: "Oversold, solid financials, expanding growth."

Time to nab a Nabi?
Nabi Pharmaceuticals -- a biopharm company focused on addressing hepatitis, kidney disease, and nicotine addiction -- is another low-riding stock that looks like an attractive risk/reward proposition. Lately, the company has been facing criticism from Wall Street regarding mounting losses and questionable accounting issues. Nevertheless, many in our CAPS community remain optimistic about Nabi's pipeline and recent shareholder actions.

Specifically, there's buzz surrounding Nabi's experimental nicotine vaccine, NicVAX, which was shown to help 40% of patients to quit smoking in earlier trials. In April, Nabi will announce the results of the 300-patient Phase 2b trial -- a pivotal stage in determining the vaccine's commercial viability.

Furthermore, hedge fund Third Point LLC recently installed two new board members, citing concerns over management spending. In other words, things definitely won't remain stagnant over at Nabi.

More importantly for Fools, though, is that this might just be another low-priced, five-star stock that soon sees the double-digit big time. TMFBreakerBrian, although not thrilled over Nabi's drugs, likes the proactive steps that current shareholders are taking:

"Companies that have active and attentive shareholders tend to outperform those whose shareholders are asleep at the wheel. While Nabi's pipeline doesn't particularly excite (or scare) me, the activity of non-management shareholders does warrant a thumbs up."

The Foolish conclusion
Despite our Foolish attempts to educate the investment public on 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 also 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.

See you next week, Fools. Until then, keep grazing for the low stocks as long as you're gazing at the high stars.

Foolish contributor Brian Pacampara looks at a vast array of price multiples to prevent cheap-osis and holds no position in any of the stocks mentioned. Berkshire Hathaway is a Motley Fool Inside Value choice. The Fool's disclosure policy is always in tip-top health.