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. Because the world of penny stocks is often full of manipulation and deceit, investors have a hard time separating 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 of 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.

Here's the latest list of low-priced stocks with All-Star support:

Source: Motley Fool CAPS.
*Price when the outperform call was made.

Your two cents' worth
U.S. banking institutions are facing financial stresses that strain their ability to operate. But although the housing debacle has hit UCBH Holdings, the parent of United Commercial Bank, it's also been able to raise capital and thus avert an all-out crisis. The bank's ability to remain well capitalized is due in part to a capital infusion from China Minsheng Bank -- which, when the deal is complete, will hold a 20% stake in UCBH. CAPS member ValueNAV sees UCBH coming through this tough period intact.

Non-performing loans may increase above the current level, and place downward pressure on the stock price in the near term; particularly given the recent run-up.

However, It is well capitalized and has very low [price-to-book and price-to-earnings ratios]. The construction segment is a concern, however the other segments are holding up. It seems to be very under-priced. Furthermore, many peers with worse business operational performance have risen much higher from their lows.

More pain is likely to come, but long term it will likely outperform.

Meanwhile, in the world of alternative energy, we find that cellulosic ethanol doesn't have as many ethical opponents as corn ethanol did, since the cellulosic variety isn't using food as a fuel source. For example, Verenium, an enzyme specialist allied with DuPont (NYSE:DD), wants to process sugarcane pulp to derive biofuels, and a recent partnership announcement with BP (NYSE:BP) has raised hopes that it can be successful in finally commercializing its process. All-Star CAPS member umight understands the risks involved with a perennial money-loser like Verenium, but the BP agreement mitigates some of that concern.

It is hard to rate bio-tech companies. It is harder still to rate bio-tech start-ups with nothing but losses in their history. But BP's $90 million investment is a reassuring vote of confidence.

Their ethanol technology is based on non-food crops (energy cane, etc.) so, unlike corn, should not precipitate a backlash crisis in rising food prices.

Make some change
What do you think? 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 do.