The Next Million-Dollar Penny Stock?

Penny stocks can make you rich.

Need proof? Every one of these multibaggers was, at one time, a penny stock:

Company

Recent Price

CAPS Stars (out of 5)

5-Year Return

Elan (NYSE: ELN  )

$31.90

***

604.2%

Savient Pharmaceuticals (Nasdaq: SVNT  )

$25.99

***

466.2%

Tesoro (NYSE: TSO  )

$15.30

***

322.7%

Reliant Energy (NYSE: RRI  )

$17.21

**

246.3%

ON Semiconductor (Nasdaq: ONNN  )

$8.87

*****

147.8%

Sources: Motley Fool CAPS, Yahoo! Finance.

The promise of outrageous returns is why some of the world's best stock pickers are, at times, penny-stock investors. Peter Lynch has enjoyed, and still does enjoy, the stock market's super-cheap seats. The Royce Low-Priced Stock fund crushes the market by betting on stocks trading for less than $10 a share. Even the All-Stars in our 110,000-strong Motley Fool CAPS community take to penny stocks, and more than a few of them have been richly rewarded.

Pennies from heaven
So why not invest in penny stocks? I suppose because the SEC has warned us about them. But what if we take the agency's definition literally and limit our choices to stocks trading between $1.50 and $5 a share? And what if we further limit our choices to four- and five-star stocks whose market cap doesn't exceed $2 billion but is at least $250 million? Surely our new CAPS screener would return some winners, right?

Well, this week, 36 stocks made the cut -- including our last topper, CDC (Nasdaq: CHINA  ) . Let's move on to Oilsands Quest (AMEX: BQI  ) , which, with oil still around $120 a barrel, has captured the imagination of several in our CAPS community:

Metric

Oilsands Quest

CAPS stars (out of 5)

*****

Total ratings

1,074

Bullish ratings

1,044

Percent bulls

97.2%

Bearish ratings

30

Percent bears

2.8%

Bullish pitches

202

Bearish pitches

4

Data current as of July 29, 2008.

I blame CAPS All-Star DemonDoug for the enthusiasm. As he saw it in October, the company's proposal to extract vast amounts of usable crude from Canada's oil sands could result in huge returns. He still appears to believe that.

"The outlook for this company is extremely positive, if their production numbers can be achieved," our Fool wrote last week. "I've long felt that any oil company that is increasing output, especially over the next 5-10 years, is going to be a big, big winner ([because of] increasing global energy demands, falling dollar, and peak oil)."

Agreed. Consider, too, that institutions own only 43% of the outstanding shares. If Oilsands Quest can produce what it says it can produce, the big money will buy in bulk and deliver the multibagger from today's prices that CAPS investors are hoping for.

But that's my take. What's yours? Would you buy Oilsands Quest at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

See you back here next week with another penny stock from heaven. Fool on!

Every month, the Motley Fool Hidden Gems service spotlights promising micro-cap opportunities in a segment called "Tiny Gems." Try this market-beating service risk-free for 30 days to find out what our penny-stock sleuths are following now.

Fool contributor Tim Beyers, who is ranked 18,628 out of more than 110,000 participants in CAPS, is a regular contributor to Fool.com and is a member of the market-beating Rule Breakers team. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool's disclosure policy was small and cuddly. Once.


Read/Post Comments (2) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2008, at 2:10 AM, r0b50 wrote:

    With a joint partnership and Toronto stock listing coming by the end of the year, we should see a lot of activity leading up to the test production in 2009 of 10k barrels a day, from just one small area of their holdings.

    BQI will be an obvious winner with solid management, consistent proven track record with incredible accuracy on future expectations. Not to mention that BOE resource estimates that were doubled from just last year.

    Do your homework, you will be impressed with this development stage company.

    Obvious discluse - Long BQI

  • Report this Comment On July 30, 2008, at 9:41 PM, dcarlyle wrote:

    Local.com (LOCM) is the best potential in the market. They are planning to double revenue in 2008, reach profits and the market cap should go up 1500-2000% over the next 3-5 years with the local search and mobile 411 industries growing to reach about $26 billion. Very limited analyst coverage, but Colin Gillis and Jon Hickman of Conaccord Adams and MDB Capital have buy ratings and price targets of 250-400% above todays price.

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