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 (out of 5)

5-Year Return

Dynamic Materials (Nasdaq: BOOM  )

$18.20

*****

945.9%

Meridian Bioscience (Nasdaq: VIVO  )

$22.86

*****

425.5%

U.S. Global Investors (Nasdaq: GROW  )

$9.49

****

508.3%

Iconix Brand Group (Nasdaq: ICON  )

$15.87

****

470.9%

SIGA Technologies (Nasdaq: SIGA  )

$8.40

**

508.7%

Sources: Motley Fool CAPS, Yahoo! Finance.

The promise of outrageous returns has periodically made even the world's best stock pickers into 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 Emulex (NYSE: ELX  ) .

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?

This week when I ran that screen, 49 stocks made the cut -- including our previous topper, Alvarion.

My favorite penny stock this week is Silvercorp Metals (AMEX: SVM  ) , a Canadian miner that operates in China. The details:

Metric

Silvercorp Metals

CAPS stars (out of 5)

****

Total ratings

189

Percent bulls

95.8%

Percent bears

4.2%

Bullish pitches

27 out of 27

Data current as of July 2, 2009.

Interestingly, Wall Street can't be bothered with Silvercorp Metals. Analysts haven't issued a rating for the shares since 2005, Yahoo! Finance reports.

Fools take a different view. More than 95% of CAPS All-Stars -- investors who rank in the top 20% in portfolio performance -- support Silvercorp. Why? One of them, bridgeboy0, offered this thesis in April:

When things turn around it will be a result of the governments around the world having pumped money of all kinds into the system. This will cause a surge in inflation as economies start to tick up. That's why I've been and continue to be bullish on precious metals and the miners of said metals. Really, anything that is sensitive to inflation is a good place to be.

Indeed, inflation will remain a risk so long as the Fed and Treasury continue to pump money into the system. But that's also just one Fool's take. I'm more interested to know what you think. Would you buy Silvercorp Metals 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. Dynamic Materials is a current Hidden Gems pick.

Fool contributor Tim Beyers owned shares of Alvarion, a Motley Fool Rule Breakers recommendation, 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 (3) | Recommend This Article (9)

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 July 02, 2009, at 2:37 PM, TSCI wrote:

    CAPS screening is a very valuable tool and should be utilized in conjunction with fundamental research. A good resource on small cap stocks from independent analysts, including research reports, is available over at www.thesmallcapinvestor.com.

  • Report this Comment On July 06, 2009, at 10:49 PM, madmilker wrote:

    Shep didn't get in on SIGA Technologies at $4....but bought Wal*Mart at $62....dang! tat O' girl has to be one sandwich short of a picnic and three sheets in the wind....

  • Report this Comment On July 09, 2009, at 5:21 AM, cheapspender wrote:

    Your blog is surprisingly interesting I thought it was only a list full of numbers but nah! it was list that can make you think.."Hmmmm, maybe, its my time to try my luck in penny stock trading".

    http://www.hotmicrocapstocks.com/

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