Making Cents in Penny Stocks
Nov 2nd 2011 8:55PM
Updated Nov 2nd 2011 8:58PM
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.
This week, we'll look at three low-priced investments the CAPS community has singled out as those with the best chances of success by bestowing four- and five-star ratings on them. We just might want to turn our umbrellas upside-down to catch them!
Here are three low-priced stocks enjoying high CAPS support:
Return on Capital
|Abraxas Petroleum (NAS: AXAS)||$3.54||****||(3%)|
|Great Panther Silver (ASE: GPL)||$2.46||****||11%|
|SUPERVALU (NYS: SVU)||$7.60||****||7.3%|
These three 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.
Hiding in plain sight
Along with much of the rest of the industry, independent oil and gas producer Abraxas Petroleum was able to thumb its nose at analyst downgrades and stage a rally in its shares. While Abraxas, Clayton Williams Energy (NAS: CWEI) , and even Pioneer Drilling (NYS: PDC) have given back some of their gains, they all still trade well north of where they were when the negative industry opinion was released.
When earnings are released this month, investors will be able to see whether Abraxas has been able to carry through successfully on its plan to concentrate its effort to focus on oil and drill in Texas and in the Williston to marshal its resources
CAPS member olesoc thinks Abraxas has the technology in place to capitalize on the resources at hand in its portfolio of assets: "i believe AXAS is up to speed in horizontal drilling technology and a likely strong consumer of gas fracking services in their bakken play."
But let us know in the comments section below or on the Abraxas Petroleum CAPS page if you agree and whether you think it will embarrass the analyst community again, and then add it to your watchlist to see whether it pulls it off.
Ready to pounce
The degradation of average ore grades that first arose in the second quarter and spilled over into the third caused shares of Great Panther Silver to corrode, trading at about half the price they were earlier this year. For the Fool's silver and gold guru Christopher Barker, it's a shortsighted move by a myopic market that provides investors with an incredible buying opportunity in a great growth story.
Like Endeavour Silver (NYS: EKX) , Great Panther is stalking the silver lodes beneath the city of Guanajuato, Mexico. Having visited the mines, Christopher finds it intriguing that the veins could extend far deeper than previously thought, giving both Great Panther and Endeavour the prospects of hauling a lucrative ore out for decades to come.
Along with other chatter about the possibility of a tie-in, CAPS member BullionBullsBoot sees it as a great opportunity alone or as a takeover target.
Put Great Panther Silver on your watchlist, and let us know in the comments section below whether you think the market is disconnected from reality here.
The SUPERVALU in its name could just as easily point to its stock price, particularly now that the supermarket chain is dedicating more cash to remodeling rather than simply opening more stores, as it had originally planned.
Eddie Lampert at Sears Holdings (NAS: SHLD) was rightly criticized for his long unwillingness to remodel and invest in his store base despite the drab, dreary experience it gave shoppers. As sales continued to dwindle, he finally relented and began the process of modernizing his stores. That may end up being a case of too little, too late -- something SUPERVALU hopes to avoid.
Rather than open as many as 160 Sav-A-Lot stores as originally planned, the grocery chain has cut the number in half and will use the rest of the funds originally targeted for the projects to spruce up its Cub Foods, Shaw's, and Jewel brands. Better to get right what you already have than to continue adding to stores that aren't operationally sound. Sales slid more than 3% in the second quarter as comps fell almost 2%, while adjusted profits were flat. Making the shopping experience better for consumers could reverse that trend.
Such minor tweaks to the process could bring major benefits and underscores the belief of CAPS member jclawsonPHN, who says, "This is a stock that only needs to improve a minor degree to do well."
Add the supermarket chain to the Fool's free portfolio tracker, and tell us on the SUPERVALU CAPS page whether you think it's as super a value as its name indicates.
At the time this article was published Fool contributor Rich Duprey owns shares of Great Panther Silver, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of, and Motley Fool newsletter services have recommended buying calls in, SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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