Penny stocks can either make or break your portfolio. In this weekly series, we'll look at the heartbreakers, the hypesters, and the stocks destined to disappoint, and then close with better alternatives for your portfolio.

Pinched by pennies
More on all those stocks in a minute. First, let's talk about why you want to avoid most penny stocks. Last year at this time, 3,760 stocks listed on U.S. exchanges were trading for $5 or less, and worth between $5 million and $1 billion in market cap, according to Capital IQ. Of those, 1,296 declined in value over the past year -- during a massive rally in which the overall market surged nearly 29%.

It shouldn't surprise you that Pink Sheets issues are some of the biggest losers -- or that the companies behind these thinly traded stocks are stock promoters' most frequent clients. They pay these hypesters a fee to produce "research" intended to encourage you, the sucker -- I mean investor -- to buy shares.

We don't want you to fall for these shenanigans. To help, we're going to deconstruct one potential scam per week with help from Motley Fool Hidden Gems co-advisor Seth Jayson and Motley Fool CAPS majordomo John Keeling and their TMFStockSpam CAPS portfolio.

Let's meet this week's miscreant: Options Media Group.

Pass up this option to buy
"Options Media Group Holdings, Inc. (OPMG), a growing force in mobile applications and marketing and mobile social media, today announced it has closed on its previously announced acquisition of PhoneGuard and entered the mobile and smart phone application market," reads the opening of the pitch.

Clever, isn't it? Using "mobile" three times in the opening sentence, the writer hopes to convince you that Options Media knows the smartphone market. But that doesn't jibe with the company's description of its core business:

The Company provides an email services for on-demand email marketing to create, send and track professional and permission-based email marketing campaigns. Additionally, Options Media provides precision direct marketing solutions including email marketing, SMS/mobile marketing, SMS/keyword marketing, custom lead generation and creative services. 

Um, yeah. Options Media has more in common with email marketing firm Constant Contact (Nasdaq: CTCT) than it does smartphone specialists such as Palm.

There's also the disclosure line to consider. "OTCPicks.com is currently being compensated four thousand dollars and two hundred thousand restricted 144 shares by a third party for OPMG advertising and promotional services," it reads. [Emphasis added.]

This isn't research, it's an ad.

Finally, let's talk irony. PhoneGuard is also developing a product that prevents drivers from texting while on the road. Options Media, an email and text message marketer, is acquiring technology that ... blocks text messages. Delicious!

Inside the head-fake
Can you spot any other problems with this pitch? I see two unrelated businesses marrying and then pretending there's virtually no competition to contend with. Here's Options Media CEO Scott Frohman, speaking in a press release copied into OTCPicks' pitch:

Within the acquisition we are announcing today, we are also acquiring one of the most robust technologies available today that prevents texting while driving. A majority of states within the U.S. have already passed legislation making it illegal to text while driving and the vast majority of the remaining states are in various stages of implementing similar restrictions. Considering the very few number of competitors currently addressing this important unmet market need, we believe our very robust software product could become very popular in the marketplace. [Emphasis added.]

Not exactly, sir. Safe Driving Systems and Aegis Mobility are two among many start-ups working on software that limits phone use while driving. And now that Ford Motor (NYSE: F) and Toyota (NYSE: TM) have come out strongly against texting while driving, more companies are sure to enter the market.

Finally, PhoneGuard's lone advantage versus these anti-virus competitors may be price. According this video interview, the PhoneGuard software costs about $2 to download and install. So, even if there is a massive untapped market for mobile anti-virus software, we're not talking about billions in new revenue for Options Media. Margins may also prove to be surprisingly thin.

Put in starker terms: for as much as we love to talk about the app economy growing up around the iPhone, we've yet to see an iPhone app developer go public and make investors rich. Why should we believe Options Media would be any different, especially when this self-described email marketer appears to have zero software development experience?

Is there a story here?
But I promised you more detail about legitimate enterprises that deal in the sort of smartphone security technology that Options Media is promising. Let's review:

  • Through its Norton subsidiary, Symantec (Nasdaq: SYMC) has long dominated the PC anti-virus market. Norton Smartphone Security promises to block rogue text messages and defend against mobile viruses. The software's lone weakness, writes one reviewer, is that there's no support for Research In Motion's widely used BlackBerry OS.
  • McAfee (NYSE: MFE) has been offering defense against threats to Windows Mobile for some years now, and recently upgraded its offering to include protection for Android handsets operating on SK Telecom's (NYSE: SKM) network in South Korea.

Of these two, I like McAfee if only because the research shows that Google (Nasdaq: GOOG) is attracting an increasing number of developers and handset partners to the Android OS. McAfee also trades for about 13 times estimated earnings, Yahoo! Finance reports, about in line with Wall Street projections. Investors buying here are buying growth at a reasonable price.

Now it's your turn to weigh in. How would you invest in waste-to-energy technology? Discuss in the comments box below.

Ford is a Motley Fool Stock Advisor selection. Google is a Motley Fool Rule Breakers recommendation. SK Telecom is a Motley Fool Global Gains pick. Try any of our Foolish newsletters free for 30 days.

Fool contributor Tim Beyers is also a member of the Rule Breakers stock-picking team. He owned shares of Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy wishes the scammers would cram it.