The Next Million-Dollar Penny Stock

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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
Astronics	$10.52	*****	187.4%
Yamana Gold (NYSE: AUY)	$8.89	****	273.5%
Yanzhou Coal Mining (NYSE: YZC)	$15.03	****	152.6%
Oilsands Quest (AMEX: BQI)	$0.86	****	109.8%
U.S. Gold (AMEX: UXG)	$2.89	***	478%

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 KKR Financial (NYSE: KFN).

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, 48 stocks made the cut -- including our last topper, Hercules Offshore. My favorite penny stock this week is Canadian copper miner Taseko Mines (AMEX: TGB). The details:

Metric	Taseko Mines
CAPS stars (out of 5)	****
Total ratings	1,331
Percent Bulls	97.9%
Percent Bears	2.1%
Bullish pitches	208 out of 210

Data current as of Aug. 19, 2009.

Convincing arguments from my Foolish colleague, Christopher Barker, sway me. "With less than 10% the production scale of Southern Copper (NYSE: PCU), Taseko possesses a secret weapon to slay the competition," he wrote while covering this week's second-quarter earnings report.

"The pending Prosperity project, which Taseko is 'extremely confident' will clear regulatory hurdles, offers not only 2 billion pounds of copper, but a large-scale gold reserve of 4.7 million ounces," Chris wrote.

In short, Taseko is sitting on a stockpile that larger competitors may be willing to pay for, since copper remains in high demand. How long the rally will last is anyone's guess, but Asia's emerging economies should continue to use the metal to build and upgrade infrastructure for modern industry.

But that's just my take. Do you agree? Would you buy Taseko Mines at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

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