The Next Million-Dollar Penny Stock

Penny stocks can make you rich. Need proof? Every one of these multibaggers was once a penny stock:

Company

Recent Price

CAPS Stars (5 Max)

Five-Year Return

VASCO Data Security

$6.99

*****

186.5%

Hansen Natural (Nasdaq: HANS  )

$36.90

****

1,916.4%

Almost Family

$22.04

****

434.9%

NutriSystem (Nasdaq: NTRI  )

$14.22

***

319.5%

W.R. Grace & Co. (NYSE: GRA  )

$7.76

**

164.8%

Sources: Motley Fool CAPS, Yahoo! Finance.

The promise of outrageous returns has periodically made even the world's best stock pickers penny-stock investors. Peter Lynch has and still does enjoy the stock market's super-cheap seats. The Royce Low-Priced Stock fund has beaten the market for a decade by betting on stocks trading near or below $10 a share, including IPG Photonics (Nasdaq: IPGP  ) and THQ (Nasdaq: THQI  ) .

Even the top-rated All-Stars in our 130,000-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? Well, the warning the SEC issued about them provides one excellent reason to steer clear. 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 seek only four- and five-star stocks with a market cap between $250 million and $2 billion? Surely our CAPS screener would return some winners, right?

This week when I ran that screen, 61 stocks made the cut -- including our last topper, Harvest Energy Trust, and former column star Brocade Communications (Nasdaq: BRCD  ) .

My favorite penny stock this week is another Web wonder, Internet Initiative Japan (Nasdaq: IIJI  ) , which has a small but bullish following in our CAPS community:

Metric

Internet Initiative Japan

CAPS stars (5 max)

*****

Total ratings

216

Percent Bulls

97.2%

Percent Bears

2.8%

Bullish pitches

25 out of 26

Data current as of April 22, 2009.

Interestingly, of the CAPS investors who've rated Internet Initiative Japan since the beginning of March, more than half are from our top-performing All-Stars, who rank in the top 20% of the CAPS community. One of them, Trimalerus, argued in a late March pitch that Web service is essential to Japan's economy:

Japan has felt the effects of the global recession worse than most, but one thing that most Japanese cannot do without. It's like investing in agriculture stocks based in India, or water treatment in the Middle East. Some penny stocks are diamonds in the rough and others are lumps of coal, the trick is learning how to distinguish the two.

My guess is that longevity and scale give Internet Initiative Japan an edge that may not be fully reflected in its stock price. (The company went public at north of $31 a share here in the U.S. 10 years ago.) Rising returns on capital over the past few years are also a good sign.

But that's my take. I'm more interested to know what you think. Would you buy Internet Initiative Japan 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!

Each month, our Motley Fool Hidden Gems service spotlights promising micro-cap opportunities in a segment called Tiny Gems. To discover what our penny-stock sleuths are following now, try this market-beating service risk-free for 30 days.

Hansen Natural and IPG Photonics are Motley Fool Rule Breakers recommendations. VASCO Data Security is a Stock Advisor selection. The Fool owns shares of IPG Photonics.

Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's 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.


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Related Tickers

9/17/2014 3:10 PM
IIJI $9.86 Down -0.10 -1.00%
Internet Initiativ… CAPS Rating: *****
BRCD $10.33 Up +0.02 +0.19%
Brocade Communicat… CAPS Rating: ****
GRA $97.81 Up +1.58 +1.64%
W.R. Grace & Co. CAPS Rating: ****
IPGP $67.42 Down -0.20 -0.30%
IPG Photonics CAPS Rating: *****
MNST $90.82 Up +0.23 +0.25%
Monster Beverage CAPS Rating: ***
NTRI $16.41 Up +0.08 +0.49%
NutriSystem, Inc. CAPS Rating: **
THQIQ.DL $0.00 Down +0.00 +0.00%
THQ, Inc. CAPS Rating: **

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