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.

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:

*Price when the outperform call was made.

Your two cents' worth
China is seen as a plum marketing prize no matter what the industry, but the mobile-phone industry is perhaps the plummiest of all in a country whose 583 million cell-phone users make it the world's largest market. Motorola hasn't fared so well there of late, falling well behind Nokia (NYSE:NOK). But phones are expected to hit the market next year deploying Google's Android operating system, and deals are in place with China's cell-phone leaders China Mobile (NYSE:CHL) and China Unicom to provide infrastructure to the market. All of this represents an opportunity for Motorola to gain its footing. As CAPS member mark440 noted, Motorola is "Not just cell phones!" and should outperform the market.

XOMA -- a biotech that develops products to treat infectious diseases, immunological and inflammatory disorders, and cancer -- has announced a string of collaborations, contract awards, and clinical test results over the past few months that might point to an impressive ability to transform itself into a resurgent biotech. Yet some CAPS members, like All-Star zzlangerhans, feel the company is simply pumping its shares via press releases:

Licensing agreements are not enough to make a small cap biotech profitable, or they would simply drop their R&D department and rake in 10-15 million a quarter in royalties and contracts. XOMA seems to be playing the news cycle game where they keep bolstering their stock price with new licensing deals but never make any progress on their proprietary pipeline. Try sorting through their 10Q and see if you can figure out what's going on with their anti-sepsis candidate Neuprex. Or the HCD-122 antibody. Whenever a company gives lead billing to new phase I candidates over their established late stage products, I know something's wrong.

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. In our free CAPS investor-intelligence community, your two cents count as much as anyone else's.