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

McDermott International

$15.38

*****

430.3%

Questcor Pharmaceuticals (Nasdaq: QCOR  )

$4.75

****

400.0%

Yamana Gold (NYSE: AUY  )

$7.90

****

285.4%

Iconix Brand Group (Nasdaq: ICON  )

$13.29

***

460.8%

Life Partners Holdings (Nasdaq: LPHI  )

$17.51

*

390.5%

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 Sigma Designs (Nasdaq: SIGM  ) and Tesco (Nasdaq: TESO  ) .

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? 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?

When I ran that screen this week, 61 stocks made the cut -- including our previous topper, Internet Initiative Japan

My favorite penny stock this week is (get this) a bank. But not a U.S. bank. Instead, I'm referring to National Bank of Greece (NYSE: NBG  ) , a Motley Fool Income Investor recommendation that has a very bullish following in our CAPS community:

Metric

National Bank of Greece

CAPS stars (5 max)

****

Total ratings

558

Percent Bulls

97.5%

Percent Bears

2.5%

Bullish pitches

76 out of 81

Data current as of April 29, 2009.

The bet here, writes CAPS investor Fliujniligui, is that the economy of Greece will survive the recession intact:

You have a market cap in USD equal to total equity in Euros. And the capitalization is fat on this bank at tier-1 ratio of about 10% and this is mostly Common Equity which feeds this ratio. There is no major write off on speculative loans, not a lot of suspect securities and shadow banking stuff neither. As long as Greece do not default on its bond ([National Bank of Greece] has about 13 billion euros of them), this will be correct and loaded with potential.

Agreed. Plus, National Bank of Greece pays a meaty 3.40% dividend yield on its American Depository Receipts, at a very affordable 13% payout ratio, according to Yahoo! Finance. Better yet, this bank dividend may be one of the few that's sustainable at these levels.

But that's my take. I'm more interested to know what you think. Would you buy National Bank of Greece 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.

Sigma Designs is a Rule Breakers recommendation. National Bank of Greece is an Income Investor pick. Try any of our Foolish newsletter services free for 30 days.

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.


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