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 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 are three low-priced stocks enjoying All-Star support:

^Price when the outperform call was made.

Your two cents worth
As much as has been written about China applying the brakes to cool off a red-hot economy, the cutbacks are not even and across the board. Housing seems to be the primary focus of China's concern, and while that can ripple out to a lot of industries, the steel sector is one that's still offering growth potential.

According to one study done for Canadian steel producers, global steel demand is expected to rise throughout the remainder of 2010 and could grow by as much as 6% to 7% over the next two years. That bodes well for dry bulk shippers, which have seen their shares depressed by the global recession and a lack of demand for goods. The CAPS Dry Bulk Shipping sector is off 18% over the past year with DryShips down more than 40% and Diana Shipping (NYSE: DSX) dropping around 23%.

Yet just as all industries aren't equally affected by government policy, so, too, all shippers won't have the same opportunity to rebound among the systemic support. My Foolish colleague Chris Barker says that while Diana and Genco Shipping & Trading (NYSE: GNK) are lower risk dry bulk investments, DryShips is far riskier because of its exposure to the deepwater drilling sector, which finds itself on the ropes as a result of the Deepwater Horizon oil rig disaster at a BP  well in the Gulf of Mexico.

Yet the CAPS community remains exceedingly bullish about DryShips, with 88% of the more than 3,100 members rating it giving it the thumbs-up to outperform the broad market averages. CAPS member SCCC2008 believes that as the financial crisis in Europe ebbs, the dry bulk market in general -- and DryShips in particular -- will rebound:

Expect a large upswing in the broad sector over the second half of 2010 and well into 2011/2012 as the Greek debt crisis calms down and shipping improves.

A short circuit
Solar stocks are showing better-than-expected demand, but that might have to do with customers getting in their orders early, before government subsidies are slashed, so the markets remain cautious. In their most recent quarters, both First Solar (Nasdaq: FSLR) and LDK Solar reported results well in excess of what Wall Street was anticipating, and even provided robust full-year guidance, yet both are still off around 25% over the past month.

Considering LDK restated fourth-quarter results to show it actually lost $0.12 a share rather than the narrower $0.07 loss it originally reported, the markets have perhaps been more generous than they might have been.

But CAPS members remain bullish here, too, with 94% of those rating the solar shop saying it will beat the market. Why not head over to the LDK Solar CAPS page and let us know if you still have a sunny disposition regarding its future?

An array of opportunities
National Bank of Greece would probably be at the top of many investors' pessimism lists. The country's finances are a mess and the bailout approved by Europe is contingent on austerity measures being enacted. It's doubtful whether the Greek government has the will to impose them or can follow through as riots grip the country.

Yet even here investors are seeing opportunities; CAPS member redhead77 says National Bank of Greece will not only survive the turmoil, but will thrive:

I'm saying we're about at a bottom here. Thinking of real money for this if it goes much lower. Great growth in Turkey (Finansbank) and rest of SE Europe. Very conservatively managed. The go-to bank in the Greek tragedy.

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? 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.