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 Member | ||
|---|---|---|---|---|
|
Indevus Pharmaceuticals (NASDAQ:IDEV) |
$1.76 |
**** |
99.98 | |
|
Endeavor Silver (AMEX:EXK) |
$3.49 |
**** |
99.93 | |
|
Global Industries (NASDAQ:GLBL) |
$8.81 |
***** |
99.93 | |
|
Challenger Energy (AMEX:CHQ) |
$5.36 |
** |
99.71 | |
|
National City (NYSE:NCC) |
$4.62 |
* |
98.70 |
*Price when the outperform call was made.
Excessive caution
With the FDA issuing a seemingly silly delay for Indevus Pharmaceutical's hypogonadism drug Nebido, the specialty drug company was still able to increase revenues from its other therapies on the market while at the same time narrowing losses. Despite the holdup, the approvable letter Indevus did receive means that when it provides the FDA with additional, acceptable data, Nebido could be approved. If so, that would serve to boost revenue further.
CAPS member wiredo recognized the shortsightedness of the market's reaction to the FDA ruling back in June: "Stock unfairly hammered on news of further trials required of NEBIDO. Company has other drugs in market, [Nebido] is already available in Europe, and more drugs are in pipeline."
No slick trick
Unlike offshore drilling company Transocean (NYSE:RIG), which nearly doubled profits this quarter, offshore construction and engineering company Global Industries got mired in the muck this quarter as a result of poor weather, port clearance and permitting issues, and delays in obtaining support vessels and equipment from customers. All that standing around doing nothing meant revenue rose 21% but profits were turned into losses of $0.12 per share. Global has initiated a remediation program to prevent future occurrences, along with adopting a share buyback plan which has CAPS All-Star tenmiles looking to capitalize on the market's wigging out over the results and sending its shares down by 26%.
Buying this one after recent price collapse. Mid teen ROE, approximately 30% of market cap in net cash; stock buyback in place-buyer in the 8's for substantial long term price appreciation, although near-term price action likely to remain compromised.
Anywhere but Florida
National City continues to suffer from its poorly timed entrance into the Sunshine State's housing market with loan-loss provisions rising, portfolio liquidation, and net charge-offs increasing substantially. With second-quarter earnings from other banks like Wells Fargo (NYSE:WFC) proving to be better than expected, National City is realigning itself so that it looks like an interesting turnaround play to some smart Fools, though it's one still rife with risk.
That's an assessment CAPS member dphill3838 would agree with; he finds the bank, at these prices, with little place to go but up.
National City made some bad mortgage bets and bought 2 banks in Florida at the peak. They sold their subprime company to Merrill [Lynch] in '06 and are working through their loan portfolio. After the $7 billion capital raise in March 2008, they have the highest tier 1 capital ratio of the major banks in the U.S. 6% is well capitalized, NCC is 11.1%. They made some bad mistakes but long term this isn't going anywhere but up.
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. Consult our free CAPS investor-intelligence community, where your two cents count as much as anyone else's.
