Making Cents in Penny Stocks
Low-priced stocks are often low-priced for a reason: They have significant problems to overcome. Yet for those that have fixed their problems, they may be ready to take off to the next level.
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 two 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!
|Denison Mines (ASE: DNN)||$1.64||*****||(24%)||NA||(10.8%)|
|Hansen Medical (NAS: HNSN)||$2.36||*****||(20%)||(175%)||(46.5%)|
Source: FinViz.com, Motley Fool CAPS; NA = not available.
These two 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 into the shallow end of the stock pool.
Getting bigger by going smaller
Last month, uranium producer Denison Mines announced it was selling its U.S.-based assets to tiny Canadian miner Energy Fuels in a deal many suspect is a prelude to it becoming an acquisition target, but the cost of the transaction was enumerated in its latest financial report as it was required to perform an impairment test. The results caused Denison to take a $44 million charge on the assets, which caused its losses in the quarter to widen to $52 million.
Denison and other uranium producers like Cameco (NYS: CCJ) have been suffering from depressed uranium prices in the wake of Japan's nuclear reactor meltdown following the earthquake and subsequent tsunami. In the year-ago first-quarter period, Denison actually sold 30% less uranium than it did this year, but it enjoyed higher prices.
Although it seems Denison is taking a step backward by becoming an exploration company again, there are several large uranium producers that would find it an attractive addition to their portfolios. Cameco would naturally be one, but Areva also makes sense since Denison owns a 22% stake in its McLean Lake project.
I rated Denison to outperform the markets on CAPS after it announced the sale because of the takeover prospects, but it may take awhile for a buyer to actually step forward. Tell us on the Denison Mines CAPS page or in the comments section below your thoughts on the takeover chatter, then add the stock to your watchlist to be notified of developments as they arise.
While management says there's a lot of excitement over its Magellan robotic catheter systems in Europe, the financial crisis gripping the continent caused Hansen Medical to experience a significant drop in sales and procedures performed, down 12% and 5%, respectively. Earnings also saw a 180-degree change of fortunes as Hansen went from recording an $11.7 million profit last year to an $11.8 million loss this time around.
Surgical robotics has marked a huge leap in minimally invasive procedures that have reduced the pain of recovery and cost of medical care. However, because the technology itself is expensive, it has caused hospitals to have second thoughts about making purchases now, particularly in light of doubts about whether the euro will be devalued or even if the European Union will come unglued.
MAKO Surgical (NAS: MAKO) , a maker of robotics for knee replacement procedures, was only able to sell six of its RIO units globally -- five of them in the U.S. -- down from 18 in Q4 and the seven from this time last year. The sixth was sold in Japan, where it's trying to break into the market, but it had to defer the revenue from it in the event regulatory approval falls through. Intuitive Surgical (NAS: ISRG) seems to be the exception that proves the rule as its total da Vinci sales were nearly 17% higher.
Even with the lower sales and reduced expectations for the rest of the year, CAPS member Teacherman1 believes Hansen is a long-term play and that current valuations make it tempting: "Could be a good long term play, especially on the additional supply sales if it can get to a high enough acceptance and uasge level."
Let us know on the Hansen Medical CAPS page if you agree with this assessment, then put its stock on the Fool's free portfolio tracker to see if it's just going through the motions.
Make some change
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At the time this article was published Fool contributorRich Dupreyowns shares of Intuitive Surgical, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Intuitive Surgical and MAKO Surgical.Motley Fool newsletter serviceshave recommended buying shares of MAKO Surgical and Intuitive Surgical. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.