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 (5 Max)

Five-Year Return

GMX Resources (Nasdaq: GMXR  )

$23.84

***

1,590.8%

Questcor Pharmaceuticals (Nasdaq: QCOR  )

$9.30

***

1,424.6%

Covanta Holding (NYSE: CVA  )

$21.58

****

598.4%

AK Steel (NYSE: AKS  )

$9.76

***

152.2%

Vimpel-Communications (NYSE: VIP  )

$9.50

****

114.9%

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 and still does enjoy the stock market's supercheap 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, such as Silver Standard Resources (Nasdaq: SSRI  ) .

Even the All-Stars in our 120,000-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 cap doesn't exceed $2 billion but is at least $250 million? Surely our new CAPS screener would return some winners, right?

This week, 66 stocks made the cut -- including our last topper, Bare Escentuals. Let's move on to Global Industries (Nasdaq: GLBL  ) , a top growth stock that's getting plenty of love from our CAPS community:

Metric

Global Industries

CAPS stars (5 max)

*****

Total ratings

845

Bullish ratings

818

Percent bulls

96.9%

Bearish ratings

27

Percent bears

3.1%

Bullish pitches

110

Bearish pitches

3

Source: CAPS; data current as of Dec. 11, 2008.

In a late summer pitch, Nate Weisshaar, otherwise known as TMFMossBeliever in CAPS, explained the thesis for this construction-services company in oil-and-gas industry:

The company is in the process of expanding and updating their fleet so that they can offer higher value services, so not only are they trying to expand geographically, they are moving up the value chain in their offerings. This provides nice growth prospects in a field that doesn't appear to be going anywhere any time soon (regardless of the thought that a recession is going to dramatically reduce the world's demand for oil, which it won't for long). However, these strategic adjustments also create uncertainty as these are new areas and management has already shown some shortcomings.

Like most stocks, Global Industries has since declined. But all that's done is to create an opportunity for bargain shoppers such as CEO John Clerico, who last week bought 200,000 shares on the open market. Board member William Dore also bought, but in greater bulk. He added 1 million shares.

Color me unsurprised. Global Industries is trading as if each dollar of revenue were worth just $0.35, and the stock is still well below the fire-sale price that caught fellow Fool Matt Koppenheffer's attention in October.

But that's my take. I'm more interested to know what you think. Would you buy Global Industries 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 also contributes to the market-beating Rule Breakers service, which counts Bare Escentuals as a recommendation. Bare Escentuals is also a Hidden Gems pick. Tim didn't own shares in any of the stocks mentioned in this article at the time of publication. The Motley Fool's disclosure policy was small and cuddly. Once.


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