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Making Cents in Penny Stocks

By Rich Duprey - Updated Apr 5, 2017 at 8:03PM

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Low-priced stocks often 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 stars max.)

CAPS Member

Member Rating

Amylin Pharmaceuticals (NASDAQ:AMLN)

$6.28

***

goldminingXpert

99.99

McDermott International (NYSE:MDR)

$7.53

****

vanamonde

99.95

Alcoa (NYSE:AA)

$9.25

****

Tankota

99.83

Suntech Power (NYSE:STP)

$8.11

****

tuffsledding

99.71

Sigma Designs (NASDAQ:SIGM)

$8.52

*****

Zippidy1

99.64

*Price when the outperform call was made.

Your two-cents worth
The impact the recession is having continues to reach out into a number of sectors unrelated to financials, automobiles, or retail. Providing chips for set-top boxes delivering television content over a broadband signal comprises 85% of Sigma Designs revenue. Thanks to manufacturers scaling back production due to slowing demand, the chipmaker not only missed current analyst forecasts but gave below-expected guidance for the next quarter as well. Moreover it has to face the continued presence of Broadcom (NASDAQ:BRCM) in its territory too.

Providing a floor for this tech company, however, is its strong cash position and lack of debt. That potent combination leads CAPS member skymutt2 to see Sigma as ready to fly.

They started buying back stock way too early, but guess what-- they still have cash and no debt, and the technology that made this a highflier just a few months ago hasn't gone away. It's a lottery ticket, but the odds are in your favor at $9.

Getting in too early into an investment is always a possibility, though Warren Buffett would probably suggest that so long as it's a good one you'd be well served by patience. He purchased Burlington Northern Santa Fe (NYSE:BNI) almost two years ago, and despite a brief run up, it once again trades at about the price he paid for it.

CAPS member Theresewin is therefore in good company with the belief that Suntech Power may yet be an early pick. A new administration will be far more sympathetic to creating opportunities that ultimately help it succeed. Theresewin believes that Suntech will benefit as solar energy gains broader acceptance.

I may be a little early...but [Suntech Power] is well positioned internationally to participate as solar gains more acceptance and it will be a focal point of conversation over the course of Obama's presidency as a lot of GREEN folk backed him and have his ear....I see a long term opportunity here..

Penny for your thoughts
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.

Sigma Designs is a Motley Fool Hidden Gems Pay Dirt selection. Suntech Power and Sigma Designs are Rule Breakers recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the 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

Sigma Designs, Inc. Stock Quote
Sigma Designs, Inc.
SIGM
Alcoa Inc. Stock Quote
Alcoa Inc.
AA
McDermott International, Inc. Stock Quote
McDermott International, Inc.
MDR

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

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