Noah Education Holdings Ltd. (NED)

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Making Cents in Penny Stocks

By Rich Duprey March 27, 2008

http://www.fool.com/investing/general/2008/03/27/making-cents-in-penny-stocks.aspx

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. Though some investors think cheaper stocks have a greater chance to appreciate, those stocks may be cheap for a reason. Indeed, a $20 stock may have even better chances of gaining value than a $0.20 one.

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 players.

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:



As we delve into the low-priced "pennies," we find that all of the companies are generally well-liked by the CAPS community; most are rated four stars or better.

Small stuff, big growth

Even investors in the relatively new Chinese stock market can get jittery when conditions don't remain "just so." That helps to explain why even the Shanghai index sits some 40% below its October 2007 highs. Individual issues can also get hit when they don't conform to some Goldilocks standard -- just like what happened with recent IPO Noah Education.

The provider of digital educational content in China suffered a meltdown last November after one of its digital learning devices (DLD) failed to carry a required environmental compliance sticker. It probably didn't help that management seemed to try to sweep the matter under the rug, making Noah one of the worst stocks in the world.

Still, the company has forecast 22% to 24% revenue growth for 2008, along with a 74% to 81% increase in profits. Admittedly, those are down from prior estimates -- another matter management neglected to highlight.

Yet Noah's potential has investors betting that it will be able to regain its short-lived IPO glory. CAPS investor dockofthebay thinks that with the sticker issue behind it, Noah has "far too much potential to ignore."

Similarly, CAPS player KSB47 finds the digital learning company uniquely positioned to capitalize on the demographic needs and trends of the Chinese population, as outlined in this pitch from the end of last year:

A very high emphasis is placed on education in China. ... In China, [one-child policy] children are raised to be as successful as possible because they will be responsible for taking financial care of their parent's later in life. There are currently 291 million children between the ages of 5-19, Noah's target audience. Noah is the ONLY interactive educational company to partner with China's Ministry of Education. With over 30,000 course titles, Noah is very well positioned to capitalize on the necessity (not need) for higher learning. ... Company is looking at organic growth and growth through acquisitions.