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

Almost Family (Nasdaq: AFAM  )

$28.43

*****

612.5%

Hansen Natural (Nasdaq: HANS  )

$32.62

****

1,044.6%

Arena Resources (NYSE: ARD  )

$31.40

****

946.7%

Smith & Wesson Holding

$5.39

***

261.7%

STEC (Nasdaq: STEC  )

$39.34

**

969%

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 Sigma Designs (Nasdaq: SIGM  ) .

Even the All-Stars in our 140,000-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, 53 stocks made the cut -- including our last topper, Taseko Mines.

My favorite penny stock this week is gold miner Rubicon Minerals (AMEX: RBY  ) . The details:

Metric

Rubicon Minerals

CAPS stars
(out of 5)

****

Total ratings

470

Percent Bulls

98.7%

Percent Bears

1.3%

Bullish pitches

72 out of 72

Data current as of Aug. 28.

Once again, the compelling prose of my Foolish colleague Christopher Barker has me looking at a metals stock. Rubicon, he says, is a natural acquisition candidate for any number of miners, but one in particular has his attention more than others:

Because of their adjacent locations in the prolific Red Lake mining district of Ontario, Canada, I believe Goldcorp (NYSE: GG  ) and Rubicon Minerals make for a logical pairing. Rubicon has uncovered bonanza-grade ores at Red Lake. Since Goldcorp founder and former CEO Rob McEwen owns nearly a quarter of Rubicon shares, I presume I'm not the first to ponder such a pairing.

Certainly not, Chris. But I'm not sure that many people have duplicated the back-of-the-envelope valuation work published by CAPS investor sewells1951 a few days ago:

Basically, I think Rubicon's resource will wind up being a lot more than 3 million ounces. Deposits at Red Lake wind up growing consistently over time for the most part. My own back of the envelope calcs tell me Rubicon probably has 5 million ounces or more in their F2 property which would support a price in the $5 plus range in the next two years as the resource becomes more clearly delineated.

Do you agree? Would you buy Rubicon Minerals 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. Hansen Natural and Sigma Designs are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletter services free for 30 days.

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. Its disclosure policy was small and cuddly. Once.


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