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 Rating

(out of five)

Five-Year Return

McDermott International (NYSE: MDR  )

$20.20

*****

515.9%

VASCO Data Security (Nasdaq: VDSI  )

$7.33

*****

227.2%

Insteel Industries

$8.51

****

236.4%

Allos Therapeutics (Nasdaq: ALTH  )

$7.63

***

240.6%

Force Protection (Nasdaq: FRPT  )

$7.98

***

232.5%

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 enjoyed the stock market's super-cheap seats in the past, and still does on occasion. 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 Gammon Gold (NYSE: GRS  ) .

Even the All-Stars in our Motley Fool CAPS community of 135,000-plus members 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, 55 stocks made the cut -- including our last topper, Northgate Minerals.

My favorite penny stock this week is SiRF Technology (Nasdaq: SIRF  ) , a maker of chips and other geekery that helps devices discern where they are in the world:

Metric

SiRF Technology

CAPS stars (out of five)

****

Total ratings

742

Percent Bulls

95.1%

Percent Bears

4.9%

Bullish pitches

133 out of 140

Data current as of June 19, 2009.

SiRF has soared since the beginning of the year, padding the CAPS portfolios of the many All-Star investors who have rated the stock "outperform."

Of the 26 Fools to have rated the stock since January, 14 are ranked in the top 20% of the community, and of those, only one thought SiRF would underperform. Oh, how wrong that was.

But can the stock keep its winning streak alive? I think so. Mobile platforms are only now beginning to test the boundaries of what's possible when phones are location-aware via Global Positioning Systems and the like. Take Apple's (Nasdaq: AAPL  ) newest iPhone -- the 3Gs. Yesterday, it added a compass. SiRF's technology makes this sort of software function as it should.

My guess is that there will be more location-aware software and that SiRF will have a huge role in enabling it. I've rated the stock to outperform as a result. But that's me. I'm more interested in knowing what you think. Would you buy SiRF at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

More millionaire-making Foolishness:

Each month, our 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.

Apple and VASCO Data Security are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple 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.


Read/Post Comments (4) | Recommend This Article (26)

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 June 20, 2009, at 8:03 PM, ackland18 wrote:

    Ya I would totally agree. Penny stocks can make you rich pretty quickly and the reason is because they can be explosive. Part of the problem is finding the right ones though. I use a service called Iron Hot Stocks. Here is their link: http://www.ironhotstocks.com and they do a penny stock newsletter and also have weekly picks. Ive made about 270% off of SPNG so far thanks to them so I would suggest you check them out. Also I would find a great trading platform such as Zecco or TD. Love their promotionals they have.

  • Report this Comment On June 22, 2009, at 2:33 PM, bbyzfr6 wrote:

    I read about a merger with CSR. Is this still underway? I have some money riding on this penny stock so I hope this article is correct!

  • Report this Comment On July 30, 2009, at 6:45 AM, cyrus55 wrote:

    I've owned SIRF from the highs. It has been delisted on the exchange. It was indeed purchased by CSR. It is, according to reports from the company, supposed to be listed as CSRFX, but so far I haven't found a quote for it.

  • Report this Comment On July 30, 2009, at 7:02 AM, cyrus55 wrote:

    Sorry, it should have read CSRXF but that is no longer a good symbol, either!! It is now listed as CSRXF.PK

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