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)

5-Year Return

GigaMedia (Nasdaq: GIGM  )

$6.07

*****

333.6%

VASCO Data Security (Nasdaq: VDSI  )

$5.60

*****

180%

Denbury Resources (NYSE: DNR  )

$17.52

*****

363.5%

Arena Resources (NYSE: ARD  )

$30.06

***

816.5%

Transcend Services (Nasdaq: TRCR  )

$9.69

***

148.5%

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 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 Pan American Silver (Nasdaq: PAAS  ) .

Even the 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? 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 with market caps between $250 million and $2 billion? Surely our CAPS screener would return some winners, right?

This week when I ran it, 79 stocks made the cut -- including our last topper, Gerdau AmeriSteel. Let's move on to another would-be commodities champ, Thompson Creek Metals (NYSE: TC  ) . Look at how it's attracting the bulls in our CAPS community:

Metric

Thompson Creek Metals

CAPS stars (5 max)

*****

Total ratings

668

Percent Bulls

97.9%

Percent Bears

2.1%

Bullish pitches

116 out of 117

Commodity prices have taken a beating recently and, reading the tealeaves, there's every reason to believe that we have yet to hit bottom. Take steel. Prices of hot-rolled coil have more than halved since June, reports U.K. trade magazine Metal Bulletin.

You'd think that would be bad news for Thompson Creek. And it still may be. But CAPS All-Star MattH42004 says the company's margins should prove recession-resistant. Quoting from his January pitch:

Thompson Creek is a slightly speculative stock that has the ability to generate massive returns to patient investors. The company mines Molybdenum, a specialty metal used to make especially high strength and corrosion resistant steel. TC's current production cost is around $7 a pound, with current spot prices around varying around $10 TC is still able to be profitable even at incredibly depressed levels.

And if that can't continue? Roughly 50% of Thompson Creek's market value is denominated in cash and liquid investments. Thus, investors buying at current levels shouldn't see much additional downside.

But that's my take. I'm far more interested to know what you think. Would you buy Thompson Creek Metals 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 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.

Vasco Data is a recommendation of Stock Advisor. Fool contributor Tim Beyers owned shares of GigaMedia, a recommendation of both the Rule Breakers and Global Gains services, 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 (15)

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 March 26, 2009, at 2:01 PM, ackland18 wrote:

    The next million dollar penny stock will be found by IHS if I'm not mistaken. Week after week since I became a member I have made great gains. Just this week alone with EESO I made 37% in one day. Not bad for 10 minutes worth of work. The more members they have the better it is for all of us so check them out!

    here is there link:

    http://www.ironhotstocks.com

  • Report this Comment On March 30, 2009, at 5:12 PM, kareem840 wrote:

    I actually bought Thompson Creek this year @ $5.10/share after seeing it listed as one of the stocks to watch (I forgot where I saw it). About a month later, I got out @ $3.96/share and watched it go down to the lower $2's. I know it will probably be back up to it's highest levels given enough time, but I'm more of a "here and now" kind of investor and don't have much patience.

  • Report this Comment On April 05, 2009, at 10:18 PM, greenwave3 wrote:

    Thompson Creek is the leading producer of molybdenum. Although prices for moly have crashed, many competitors have gone under or abandoned moly production altogether. TC has a huge cash reserve and will stand to gain when steel producers have to re-up on molybdenum.

  • Report this Comment On April 03, 2014, at 4:50 AM, microcapmillion wrote:

    This looks like a great way to invest. I myself used a program called Microcap Millionaires to start investing in small cap stocks and it has been working great. It is no pump and dump scheme but honest advice from an expert in the field.

    http://microcapmillionairesreviews.org/

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