5 Low-Priced, High-Star Stocks

Buying stocks simply because they trade for less than $10 remains one of the "lowest" -- but most tempting -- forms of investing out there.

After all, nothing trounces Mr. Market quite like a $2 stock that moves into double digits over just a short period of time. Unfortunately, due to the numerous risks that low-priced stocks carry, these mega-multi-bagger returns don't occur as frequently as one would hope.

Price means nothing
Here at the Fool, we do our darnedest to diagnose and prevent the critical stock-affliction known as "cheap-osis" -- the belief that a stock's per-share price, on its own, tells you whether a stock is cheap or expensive; attractive or unattractive; a winner or a loser.  

Through the use of splits and reverse splits, management can make the price of its shares literally anything they want. That's the reason a $100 stock like MasterCard (NYSE:MA) might very well be a great opportunity, while most penny stocks are too risky to buy at any price.

Your weekly dose of sweet 'n low
Sadly, though, some incidents of cheap-osis will never be cured completely. So, with the help of our Motley Fool CAPS intelligence database, we screen for stocks trading at less than $10 that also have enough investment merit to earn a CAPS rating of four or five stars.

Without further ado:

As always, don't view these stocks as formal recommendations, but rather as ideas you may want to research further. With that said, ChipMOS Technologies and NIC might be worth some of your own Foolish due diligence.

Chip off the low block
With the help of another five-star stock, Siliconware Precision (NASDAQ:SPIL), ChipMOS Technologies could be reaching the double digits sooner rather than later. Last week, Siliconware reported a 15% stake in the Taiwanese provider of semiconductor testing. Siliconware was very clear about their intentions, stating that the shares were acquired for strategic purposes.

ChipMOS already trades at a seemingly ridiculous PEG of 0.13 and an EV/EBITDA of 2.7, so, in this Fool's opinion, the announcement was a pretty good confirmation of value. Couple Siliconware's desire to increase its stake in the company with ChipMOS' long-term contracts -- including deals with Toshiba, Sharp, and Samsung -- and you've got a low-priced stock primed to pop.

These two CAPS players are MOS-definitely bullish:

• Regarding ChipMOS' valuation, CAPS All-Star HistoricalPEGuy says, "With such a low PEG (even if we cut the analyst estimates in 1/2) and the stock starting to chart into book value territory, its hard to stay on the sidelines. There just doesn't seem to be much downside risk, but the upside potential looks huge."

• Callahan9 goes one step further and believes a buyout is in order: "The market is pricing the stock at a price slightly more than its book value. I would venture to say there would be a good chance a much larger company may eventually gobble it up."

Perfect day to Pic-NIC
NIC, a provider of eGovernment software services, is another low-riding stock for which our CAPS players have high hopes. NIC's solutions help governments use the Internet to reduce costs and to give us a convenient way to get many of those annoying chores done. Renewing vehicle registrations, verifying professional health licenses, and obtaining fishing permits are just a few of the online services that NIC provides.  

Currently, NIC has long-term outsourcing contracts with 19 states, including four of the top five public sector web sites (according to the Center for Digital Government) -- Maine, Utah, Virginia, and Arkansas.

With impressive free cash flow production -- that management recently used to pay a special dividend -- and a debtless balance sheet, NIC might actually be a relatively safe shot at double-digits. For example, these two CAPS players use the Internet to register their NIC picks:

• As more governments and people experience the benefits of handling transactions over the net, dajmipivo loves where the company is situated: "The product/service lends itself to govt services delivered in a much more efficient and cheaper method. Citizens are demanding more from their governments, yet do not want to pay more in taxes. This is one way to achieve this goal."

• While TerryB103 lets us in one of NIC's knacks: "I REALLY like the idea behind this company. With government under pressure to provide service to the public in a more costly manner, NIC seems to have a great marketing strategy."

The Foolish conclusion
Despite our Foolish attempts to educate the investment public about cheap-osis, the allure of low-priced stocks is simply undeniable. The good news, though, is that there are indeed single-digit wonders out there that can also make great investments.

So, if you really have a bad case of the 'osis and would like to find more good low-priced stocks for yourself, then head over to our Motley Fool CAPS community. It's 100% free -- the lowest price you'll find anywhere.  

Foolish contributor Brian Pacampara swallows a couple of 10-Q's each week to prevent cheap-osis, and holds no position in any of the companies mentioned. MasterCard is a Motley Fool Inside Value pick. The Fool's disclosure policy is always in great shape.