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Making Cents in Penny Stocks

By Rich Duprey - Updated Apr 5, 2017 at 7:51PM

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While low-priced stocks can be cheap for a reason, they might also present some great, overlooked investment opportunities.

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:

Company

Price^

CAPS Rating (5 max)

CAPS Member

Member Rating

USEC (NYSE:USU)

$4.40

*****

goldminingXpert

99.99

ION Geophysical (NYSE:IO)

$2.98

*****

vanamonde

99.96

GrafTech International (NYSE:GTI)

$7.63

*****

tuffsledding

99.80

Vimpel-Communications (NYSE:VIP)

$9.49

****

thehammer01

99.13

3SBio (NASDAQ:SSRX)

$7.19

*****

zzlangerhans

99.52

^ Price when the outperform call was made.

Your two cents worth
The Russian economy looks to be coming unglued as the price of oil hovers near $40 a barrel. Energy provides the financial underpinnings for half of the country's budget and accounts for two-thirds of its exports. Much of the Russian stock market has imploded this year due to a convergence of oil's collapse, the financial sector's turmoil, and the fact that the government has turned the country into an investment gulag. It's no coincidence that the head of oil giant BP (NYSE:BP) fled the country rather than risk arrest on trumped-up charges.

CAPS member tonychuk thinks those are the anchors weighing down Vimpel-Communications, but says that when things begin to settle Vimpel should rise once again. That seems to be a valid assessment considering the wireless telecom provider was able to grow revenues by adding new subscribers while increasing average revenue per subscriber last quarter:

Russian market/oil price will eventually recover, and the negatives associated with the uncertainties that are anchoring [Vimpel-Comm] will be lifted and the stock will takeoff. [Vimpel] is one of the dominant players in Russia in cellular phone and from history the major cell phone stocks in emerging economy always perform well and better than the overall market. . [Vimpel] will be a surrogate play on Russia stock market

On doctor's orders
The impact from the financial crisis continues to reverberate around the world as Chinese biotech 3SBio was forced to write down $2.7 million of a $3 million investment in credit default swaps tied to Lehman Brothers' credit. The bankruptcy obliterated virtually all that was left of its profits for the quarter, but the company assured the market that the rest of its bond portfolio remains in good shape.

Earlier this year 3SBio partnered with AMAG Pharmaceuticals (NASDAQ:AMAG) to develop and market the anemia drug ferumoxytol in China. That's been slightly delayed now since the regulatory agency continues to be hung up on manufacturing issues, but AMAG is confident the treatment will ultimately receive approval. Still, the company stepped back from saying that would happen in the first quarter of 2009. But top-rated CAPS All-Star zzlangerhans thinks there are plenty of other developments to keep 3SBio on the move:

Unfortunately I was stuck in a negative scoring pick when the market cap went all the way down to 100M and I couldn't take advantage. Now I've closed and I'm reopening at a lower price, although not the one I wanted. 3S continues to make progress with their pipeline and has several potential positive catalysts including SFDA actions on weekly high dose EPIAO and NuLeusin for renal cell cancer, and phase III data for TPIAO in ITP. Meanwhile earnings are weak but improving. Remember, this is SFDA, not FDA. I think the chances of success will be greater.

Penny for your thoughts
What do you think? Should we fill up the change jar with these penny stocks, or ignore 'em like a 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.

3SBio is a Motley Fool Rule Breakers recommendation. The Fool owns shares of and wrote puts on GrafTech International. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey owns shares of and options on GrafTech but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy always wins the coin toss.

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Stocks Mentioned

3SBio Inc. Stock Quote
3SBio Inc.
SSRX
BP p.l.c. Stock Quote
BP p.l.c.
BP
$30.16 (1.69%) $0.50
VEON Ltd. Stock Quote
VEON Ltd.
VEON
$0.48 (-2.62%) $0.01
ION Geophysical Corporation Stock Quote
ION Geophysical Corporation
IO
Centrus Energy Corp. Stock Quote
Centrus Energy Corp.
LEU
$41.71 (7.50%) $2.91
AMAG Pharmaceuticals, Inc. Stock Quote
AMAG Pharmaceuticals, Inc.
AMAG
GrafTech International Ltd. Stock Quote
GrafTech International Ltd.
GTI.DL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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