Making Cents in Penny Stocks

The occasional shower of pennies from heaven might do our bank accounts some good. Alas, Fools can't say the same for penny stocks. They're often subject to manipulation and deceit, making it harder for investors to separate the few good offerings from the multitude best ignored.

Still, many investors enjoy dabbling at the low end of the stock-price spectrum. At Motley Fool CAPS, a "penny stock" is any stock trading under $10, and you'll find some of the best CAPS All-Stars regularly seeking out winning investments there. We identify them with a penny icon.

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 are three low-priced stocks enjoying All-Star support:

Price when the outperform call was made.

The above companies may be low-priced, but that isn't necessarily enough to suggest they'll have an easier time recording big gains. Low-priced stocks are often low-priced for a reason. We have to check and see what their catalysts for growth might be before diving in to the shallow end of the stock pool.

Your two cents worth
Droid still does, apparently. The tag line "Droid Does" was Verizon's (NYSE: VZ) assault last year on the Apple (Nasdaq: AAPL) iPhone, highlighting the various things the Motorola Droid could do that the iPhone couldn't. Now, it's boosting the phone maker's prospects as the latest Droid X is selling out all over, according to analyst channel checks. With earnings for release later this week, the handset maker could be ready to see a big boost to operations.

By selling its wireless networking equipment business to Nokia (NYSE: NOK) for $1.2 billion, Motorola will be getting a pile of cash that it will be able to use to further refine its mobile phone business. That segment accounted for a third of Motorola's revenues last year and has been steadily declining, though this quarter might be the inflection point.

CAPS member practifool says that all the attention the Droid X now commands shows that Motorola is finally thinking about the end user:

The Droid X is a big hit and all indications leads me to believe that the all popular Droid 2 with physical keyboard will be released shortly. Additionally i think that a new 2ghz device will be out before the end of the year. Relying on the android os(which is being worked on by some of the brightest individuals) has allowed them to specialize on their hardware and significantly reduce their costs.

A short circuit
Sirius XM Radio is at a turning point, too, and the reverse stock split that was approved by shareholders has the ability to become the game changer for the extraterrestrial radio station. It might be positioned for a takeover by Liberty or some other tech company, but the winning bet is that it's going to become a monster stock by standing on its own two feet.

CAPS investor Fvtme509 thinks a wealth of factors in its favor, even with threats like Pandora before it, will help it soar higher:

Superior content, Auto industry penetration, total coverage with satalites, business longevity with start up costs in the rearview mirror and a very good understanding of future costs, they also have a business model that gives you the pesonal touch of terrestrial radio (live radio DJs, requests and talk interaction on sports radio) that gives the listener a sense of nostalgic connectivity to not only one particular city or area, but to the entire country.

Lack of communication
Plant and animal nutrient products maker Yongye Biotechnology nearly doubled revenue in the latest quarter to $89 million, as Chinese farmers continue to buy up its Shengmingsu agricultural nutrient products. That was the reason behind CAPS investor JMRiv1986 calling for it to outperform the market: "Huge demand for their product in China due to higher demand for food. Patented their fertilizer formula."

The company will report earnings next week, but with guidance for the full year getting pushed higher, Yongye shows why investors might not want to abandon China just yet. Yongye's shares are up 8% this past month, better than other Chinese ag stocks like Origin Agritech (Nasdaq: SEED), which has risen just 2%. CAPS investor symie5 thinks a basket of such stocks might be worthwhile: "Good balance sheet, good growth potential...can't quite choose between YONG and CGA, so why not have them both?"

Penny for your thoughts
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 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.