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)

Five-Year Return

Denbury Resources (NYSE: DNR  )

$16.97

*****

267%

Darling International (NYSE: DAR  )

$7.34

*****

118%

KMG Chemicals (Nasdaq: KMGB  )

$7.83

****

141%

Savient Pharmaceuticals (Nasdaq: SVNT  )

$7.24

***

158%

The Knot (Nasdaq: KNOT  )

$9.05

***

132%

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 Imperial Sugar (Nasdaq: IPSU  ) .

Even the All-Stars in our 135,000-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, 56 stocks made the cut -- including our last topper, Parker Drilling.

My favorite penny stock this week is biomaterial maker Orthovita (Nasdaq: VITA  ) , a stock to watch according to some in our Motley Fool Rule Breakers community. Our CAPS members seem equally bullish:

Metric

Orthovita

CAPS stars (5 max)

*****

Total ratings

146

Percent Bulls

93.2%

Percent Bears

6.8%

Bullish pitches

22 out of 23

Their thesis is simple: Orthovita's Vitoss is a proven substitute in bone grafts. Cortoss, if approved by the Food and Drug Administration for use here in the U.S., could juice earnings by giving doctors another option for aiding those suffering with brittle bones.

"I worked for a company that distributed Orthovita products and I saw first hand what Vitoss could do and the amount of bone regeneration that took place in the spine following surgeries," wrote CAPS investor bonedude6 in late December. "Vitoss is a great product and I'm counting on Cortoss to be just as good and used by even more surgeons."

Agreed, but that's my take. I'm more interested to know what you think. Would you buy Orthovita at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

More millionaire-making Foolishness:

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. The Knot is a Rule Breakers recommendation. Its disclosure policy was small and cuddly. Once.


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