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

ViroPharma (Nasdaq: VPHM  )

$5.19

*****

106.8%

Frontier Oil (NYSE: FTO  )

$15.08

****

238.1%

Oilsands Quest (NYSE: BQI  )

$0.99

****

160.5%

U.S. Gold Corp (NYSE: UXG  )

$2.10

****

144.2%

DXP Enterprises (Nasdaq: DXPE  )

$12.31

***

541.1%

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 ADTRAN (Nasdaq: ADTN  ) .

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 whose market cap doesn't exceed $2 billion, but is at least $250 million? Surely our CAPS screener would return some winners, right?

This week when I ran it, 62 stocks made the cut -- not including our last topper, Liberty Media Interactive. Let's move on to Canada's Harvest Energy Trust (NYSE: HTE  ) , which has a bullish following in our CAPS community:

Metric

Harvest Energy Trust

CAPS stars (out of 5)

*****

Total ratings

911

Percent Bulls

96.3%

Percent Bears

3.7%

Bullish pitches

196 out of 202

Data current as of April 13, 2009.

And for good reason. Foolish colleague and commodities expert Christopher Barker calls Harvest Energy Trust -- known in industry speak as a "Canroy," or Canadian royalty trust -- one of 5 overlooked gems of the energy patch: "For investors looking seriously at the energy-producing Canroys, I recommend a mix of such trusts both to spread the risk of deeper dividend cuts and gain exposure to a diverse range of energy operations. Harvest Energy Trust, for example, offers both upstream and downstream exposure thanks to its refining operations."

Diversity is one reason to like Harvest. Fat, regular dividend payments are another. "The dividend is paid monthly, which is nice because it starts compounding so quickly," wrote CAPS All-Star DarkToast in January. "I think eventually oil is going to be considerably more expensive than it is now, and the refinery can make money whenever crack spreads are favorable."

Oil prices are already moving higher. And while Harvest recently cut its payout substantially, management has maintained a $0.04 per unit dividend in each of the past two months. Annually, that's a beefy 11.3% yield from yesterday's close. Color me tempted.

But that's my take. I'm more interested to know what you think. Would you buy Harvest Energy Trust 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. 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 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.


Read/Post Comments (4) | Recommend This Article (27)

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 April 14, 2009, at 6:40 PM, olefella wrote:

    There are a lot of interesting ones out there. Suggest you take a hard look at CIF for starters.

  • Report this Comment On April 14, 2009, at 9:48 PM, Adambaudelaire wrote:

    On reading some excited words on Dividend paying sold caps stocks - IE Harvest - I bought into this company at $10 a share. Would I buy it at four? I don't know. Will they raise their divided in the near future? Will they be mired in the four dollar slot? Will they drop again if this rally falters?

  • Report this Comment On April 16, 2009, at 2:11 PM, zrxman60 wrote:

    Right now I'm wondering when to sell, not buy. If they drop the dividend any more I sure wouldn't buy any. I think these Conroys just dropped the dividend because they could. I see no other reason.

  • Report this Comment On April 18, 2009, at 10:30 AM, ackland18 wrote:

    I hopped on PIR this week and I really think its gonna explode over the next few months. If it were to get back to its 8dollar share value after I bought in at .08 that would make me retired lol. have a 110% gain on it just this week alone thanks to IHS http://ppct.info/ihs3

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