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

Hologic (Nasdaq: HOLX  )

$14.64

*****

211.5%

ON Semiconductor (Nasdaq: ONNN  )

$7.63

*****

123.8%

Internet Initiative Japan (Nasdaq: IIJI  )

$5.13

*****

115.5%

Fuel Tech (Nasdaq: FTEK  )

$9.62

****

109.1%

Clarient (Nasdaq: CLRT  )

$3.95

**

221.1%

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 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 IPG Photonics (Nasdaq: IPGP  ) .

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, 46 stocks made the cut -- including our last topper, Exide Technologies.

My favorite penny stock this week is ANADIGICS (Nasdaq: ANAD  ) , a maker of semiconductors for wireless devices. The details:

Metric

ANADIGICS

CAPS stars (out of 5)

*****

Total Ratings

498

Percent Bulls

96.4%

Percent Bears

3.6%

Bullish Pitches

62 out of 64

Data current as of July 27, 2009.

Fools seem to most like ANADIGICS as an industry play. "This is an RF semiconductor company. It is small but it has the same kind of power amp circuits that are necessary for the wireless infrastructure. This whole sector will lead," wrote CAPS All-Star Lordrobot.

Plenty of bulls agree with him, especially our very best investors. More than 98% of the All-Star investors to have rated ANADIGICS say it will outperform, confident that a more wireless world will need the company's chips.

My guess is they're right. The president and the new chairman of the Federal Communications Commission both call for a broader commitment to connectivity, and that's likely to mean more wireless infrastructure.

But that's also just one Fool's take. I'm more interested to know what you think. Would you buy ANADIGICS at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

More millionaire-making Foolishness:

Start investing today -- just $7 per trade with Scottrade. Or find the broker that's right for you.

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. IPG Photonics is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

The chairman of the FCC, Julius Genachowski, is a former member of The Motley Fool’s board of directors.

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 owns shares of IPG Photonics and is also on Twitter as @TheMotleyFool. Its disclosure policy was small and cuddly. Once.


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Related Tickers

8/22/2014 3:59 PM
ANAD $0.63 Down -0.01 -1.56%
ANADIGICS, Inc. CAPS Rating: ***
CLRT.DL $4.99 Down +0.00 +0.00%
Clarient, Inc. CAPS Rating: ****
FTEK $4.64 Up +0.02 +0.43%
Fuel Tech, Inc. CAPS Rating: *****
HOLX $24.90 Down -0.30 -1.19%
Hologic, Inc. CAPS Rating: ***
IIJI $10.88 Down -0.20 -1.81%
Internet Initiativ… CAPS Rating: *****
IPGP $70.37 Down -0.84 -1.18%
IPG Photonics CAPS Rating: *****
ONNN $9.47 Up +0.03 +0.32%
ON Semiconductor C… CAPS Rating: *****

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