Investing in low-priced stocks can be highly profitable for investors willing to do their homework. Often, a number of low-priced stocks are on the brink of benefiting from operational turnarounds. However, the single-digit stock universe is also filled with potholes and potential land mines to avoid. Our experience in picking low-priced stocks has helped us identify four myths that once broken should improve your overall investing experience and, more importantly, your returns. Myth: Low-priced stocks are cheap While it's true that some low-priced stocks may be considered inexpensive from a reasonable valuation standpoint, many are wildly expensive. In other words, the stock price itself is not a factor in gauging a stock's "cheapness" relative to its peers. This all-too-common mistake of confusing the price of a stock with valuation has led many investors over the past two years to buy fallen technology and telecommunications shares. Investors believe that the drop in stock price -- sometimes as much as 99% -- is a buying opportunity. Unfortunately, as investors in Lucent ( LU), Applied Micro Circuits ( AMCC) and Nortel ( NT) can attest, this practice can be a vicious destroyer of capital. Sure, these stocks have nosedived from their peeks set during the Internet and telecommunications bubble of the late 1990s. But on an earnings basis -- for the companies that actually have earnings -- most of these stocks remain expensive on traditional valuation metrics, regardless of their single-digit prices. To avoid this trap, we constantly run screens in search of stocks that are both low-priced as well as reasonably valued. Over the past 20 months, we have selected dozens of double-digit percentage winners that met our criteria of being reasonably valued for the long-term investor. For example, we added shares of on-demand software company RightNow Technologies ( RNOW) when it was trading in the single digits at just two times sales while its closest competitor, Salesforce.com ( CRM), was trading at nearly five times sales.