The Next Million-Dollar Penny Stock

Penny stocks can make you rich.

Need proof? Every one of these multi-baggers was, at one time, a penny stock:

Company

Recent Price

CAPS Stars
(5 stars max.)

Five-Year Return

Insteel Industries (Nasdaq: IIIN  )

$10.43

***

2,718.9%

Dynamic Materials (Nasdaq: BOOM  )

$16.25

*****

1,077.5%

Aspen BioPharma (Nasdaq: APPY  )

$6.33

***

491.6%

Sun Hydraulics (Nasdaq: SNHY  )

$16.26

*****

379.6%

RPC, Inc. (NYSE: RES  )

$8.81

*****

179.7%

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 has beat the market for a decade by betting on stocks trading near or below $10 a share, including Callaway Golf (NYSE: ELY  ) .

Even the All-Stars in our 125,000-plus Motley Fool CAPS community take to penny stocks. More than a few 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 caps don't exceed $2 billion, but are at least $250 million? Surely our new CAPS screener would return some winners, right?

This week when I ran it (and you can, too), 62 stocks made the cut -- not including our last topper, Orthovita. Let's move on to JA Solar (Nasdaq: JASO  ) , which has a substantial following in our CAPS community:

Metric

JA Solar

CAPS stars (5 max)

***

Total ratings

1,137

Bullish ratings

1,083

Percent bulls

95.2%

Bearish ratings

54

Percent bears

4.8%

Bullish pitches

141

Bearish pitches

10

Data current as of Jan. 14, 2009.

Solar stocks took a beating last year. JA Solar, in particular, fell more than 80%. Can 2009 bring a recovery? CAPS investors say "yes," even though prices have been falling since November.

"The cat in the room. Can you predict where a cat will go if placed in a room? If you open the door and place a bowl of catfood in the next room, you can be sure the cat will go to the next room and the bowl. Incentives are the bowl to market participants. Look at Germany. Solar is huge in Germany because of the incentives," wrote JohnTH in a pitch from last week. Continuing: “Obama is planning incentives for solar here in the USA. All solar companies will benefit from the incentives, including JASO."

Agreed, but that's my take. I'm more interested to know what you think. Would you buy JA Solar 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!

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool’s own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

Sun Hydraulics and Dynamic Materials are Motley Fool Hidden Gems recommendations.

Fool contributor Tim Beyers also contributes to the market-beating Rule Breakers service. Tim didn't own shares in any of the stocks mentioned in this article at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy was small and cuddly. Once.


Read/Post Comments (3) | Recommend This Article (35)

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 January 21, 2009, at 2:31 PM, crsby34 wrote:

    Hey Tim, nice pick on Aspen BioPharma. You sure know how to pick a good stock and a good buy when you see them. Now that the stock has dropped from $7 to under $2 in less than a week from your pick. NICE JOB!

  • Report this Comment On June 29, 2009, at 8:38 PM, QwertyHero wrote:

    hahaha

    pwned.

  • Report this Comment On July 07, 2010, at 10:15 PM, jrminvestor wrote:

    Good for JASO!

    BOOM is also a great stock that I think will make big profits

    Solar investment is definitely going to increase as the industry is continuing to skyrocket.

    Envision Solar (EVSI), this going to be a very profitable company?.They are turning the traditional solar panel(ugly and

    hidden),into something that can be placed in plain site, and used as a shade tree along with the practicality of utilizinggreen solar energy. Even if revenues don?t increase huge in the

    next few quarters, the demand for their products will increase over time. And getting one contract for them can be a huge project.

    envisionsolar.com/video

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