Making Cents in Penny Stocks

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. Though some investors think cheaper stocks have a greater chance to appreciate, those stocks may be cheap for a reason. Indeed, a $20 stock may have even better chances of gaining value than a $0.20 one.

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 players.

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:

*Price when the outperform call was made.

As we delve into the low-priced "pennies," we find that most of the companies are generally well-liked, as seen by the three-star or better ratings the CAPS community has bestowed on them.

Start me up!
Chinese auto parts maker Wonder Auto Technology provides starters and alternators to small-engine cars. Considering the state of Chinese "capitalism" at the moment, the fact that management has close ties to the government (having come from state-owned enterprises) and business is growing by 30% a year, you have to like the immediate future prospects for this Motley Fool Global Gains recommendation, which could be a top growth pick. 

This isn't the most exciting industry to belong to, yet that's just what makes it attractive, as CAPS All-Star investor dbhealy points out: "china + boring company + domestically booming industry = BUY BUY BUY"

The friendly skies?
It's hard to be bullish about the airline industry. Fuel costs are pushing several airlines to the brink of bankruptcy. But mergers may save some, and with American Airlines parent AMR accelerating the retirement of less fuel-efficient planes, it might be one of the ones to survive. 

CAPS All-Star EnochRoot expects at least two in his basket of industry picks to crash and burn, but AMR remains an outperform pick for this investor:

Huge capacity cuts are coming one way or another. In this basket trade I am fully expecting at least 2 90% losses, but believe they will be more than overcome from the upside to the survivors. If, as I suspect, oil and jet fuel spreads give up a moderate portion of their current levels, the upside is quite large for the whole basket of airlines and the 1 or 2 expected bankruptcies may actually be avoided.

Time is on this one's side
You have to like where SatCon Technology is sitting right now. The maker of electronics, generators, and motors for the alternative energy industry is at a confluence of interest, demand, and means to see its technology flourish. CAPS player longandstrong23 outlined bullish points just a few days ago:

Considering this company did $56 million roughly last year, $15 million first quarter this year, I would say this gives them a pretty strong running head start at this [quarter's] number, and the year in general.

One would think that it would not be unreasonable to have many more orders just like this coming in the months ahead not only from Spain, but from many others preparing for the future of Solar and Wind.

So cut unneeded expenses - which is already happening as we can see in recent SEC filings, and grow top line revenue, and you get what? Oh yeah, a very profitable business.

Make some change
What do you think? Should we fill up the change jar with these penny stocks, or ignore 'em like a coin on the sidewalk? Consult our free Motley Fool CAPS investor-intelligence community, where your two cents are worth more than you think.