The Next Million-Dollar Penny Stock

Penny stocks can make you rich. Need proof? Every one of these multibaggers was once a penny stock:

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 ValueClick (NASDAQ:VCLK).

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, 41 stocks made the cut -- including our last topper, ANADIGICS.

My favorite penny stock this week is Dennison Mines (AMEX:DNN), a uranium producer last seen in this column in September. Today's details:

Data current as of July 30, 2009.

Fools who like Dennison at these levels are likely encouraged by Cameco's (NYSE:CCJ) recent purchasing patterns, an indicator that uranium prices may be nearing the bottom.

"Uranium was recently at its lowest price level. With brent price increase, uranium and fossil fuels tend to follow the price increase," wrote CAPS investor jajege in June. "New nuclear power plants are planned and will require more uranium production, [e]specially after the stock of uranium from the nuclear weapons are running out."

Even so, this is a very risky stock. Dennison's balance sheet boasts just $2.5 million in cash versus $100 million in long-term debt, according to Capital IQ. If market tailwinds don't materialize, and soon, today's investors could see losses.

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

More millionaire-making Foolishness:

• Stop playing with fire.
• Learn these 3 lessons from the poker table.
• The Dow's past 9,000. Now what?

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. Green Mountain Coffee Roasters and Interactive Intelligence are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletter services free for 30 days.