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 (out of 5)

5-Year Return

Hansen Natural (Nasdaq: HANS  )

$27.23

****

4,089%

Sun Hydraulics (Nasdaq: SNHY  )

$33.50

*****

960%

LAN Airlines (NYSE: LFL  )

$12.00

***

705%

Blue Coat Systems (Nasdaq: BCSI  )

$16.30

***

482%

American Oriental Bioeng. (NYSE: AOB  )

$8.68

****

2856%

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 near or below $10 a share, including Foundry Networks (Nasdaq: FDRY  ) .

Even the All-Stars in our 115,000-strong 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 cap doesn't exceed $2 billion, but is at least $250 million? Surely our new CAPS screener would return some winners, right?

This week, 27 stocks made the cut -- including our last topper, Transportadora de Gas Del Sur. Let's move on to chipmaker Himax Technologies (Nasdaq: HIMX  ) , which has a decent following in our CAPS community:

Metric

Himax Technologies

CAPS stars (out of 5)

*****

Total ratings

592

Bullish ratings

574

Percent bulls

96.9%

Bearish ratings

18

Percent bears

3.1%

Bullish pitches

91

Bearish pitches

2

Data current as of Aug. 13, 2008.

"There is a disconnect between the company's fundamentals and it's stock chart," wrote CAPS All-Star Alwayzwrong earlier this week. "The company provides critical imputs for a product that has shown consistent growth in demand over time (flat panel displays). Thus, it should only be a matter of time before demand for flat panel displays increase, and [Himax's] stock price should move to bridge the gap between the company's fundamentals and it's stock chart. This is a long-term value play, and may require a good deal of patience (perhaps longer than a year and most certainly longer than 6 months)."

Agreed. Himax is growing fast (revenue was up more than 20% in 2007), has a sturdy balance sheet, and pays a high yet affordable dividend. I can't name another firm that does so many things well that trades for less than five times earnings, but that's all it costs to acquire shares of Himax right now.

Would you take advantage of the discount by buying Himax Technologies 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, the Fool's 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. Sun Hydraulics is a Hidden Gems recommendation. LAN Airlines is an Income Investor pick.

Fool contributor Tim Beyers doesn’t own shares in any of the companies mentioned. Get access to all of his writings here, or enjoy a daily dose of his Foolishness via this feed for your RSS reader. The Motley Fool's disclosure policy was small and cuddly. Once.


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