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 Rating (out of 5)

5-Year Return

American Oriental Bioengineering (NYSE: AOB  )

$5.43

*****

271.9%

Nuance Communications (Nasdaq: NUAN  )

$14.70

****

261.2%

American Dairy (NYSE: ADY  )

$30.24

***

740%

Iconix Brand Group (Nasdaq: ICON  )

$17.38

***

414.2%

Savient Pharmaceuticals (Nasdaq: SVNT  )

$16.02

**

618.4%

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 Ivanhoe Mines (NYSE: IVN  ) .

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, 49 stocks made the cut -- including our last topper, Limelight Networks.

My favorite penny stock this week is ION Geophysical (NYSE: IO  ) , chief competitor of Motley Fool Hidden Gems pick Dawson Geophysical. The details:

Metric

ION Geophysical

CAPS stars (out of 5)

*****

Total ratings

670

Percent bulls

97.1%

Percent bears

2.9%

Bullish pitches

99 out of 100

Data current as of Sept. 20.

Each company specializes in seismic equipment that's useful for oil and other types of resource exploration. "I see a safer and more cost effective way to find minerals, oil, natural gas, and to map terrain for solar farms and wind power farms," wrote CAPS All-Star getrichdietrying earlier this month.

This member is not the only one who thinks this way. Fellow All-Star Teacherman1 and up-and-coming Fool A6EIntruder both see big potential in ION Geophysical, as do dozens of others. Only three of the last 99 Fools to rate ION say it will underperform the market, and none of those is ranked among the top 20% of investors in CAPS.

Do you agree? Would you buy ION Geophysical 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. American Oriental Bioengineering, Dawson Geophysical, and Nuance Communications are Motley Fool Hidden Gems picks. The Fool owns shares of American Oriental Bioengineering, which is also a Global Gains recommendation. 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.


Read/Post Comments (2) | Recommend This Article (14)

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 September 21, 2009, at 4:03 PM, lshreve1 wrote:

    If anyone wants another penny stock with potential, look at Unilife (UNIFF). They have a breakout product, protected by patents, which may soon be mandated by law in certain markets. Even if not mandated by law, hypodermic syringes that upon usage completely retract the needle and prevent subsequent needle sticks will be very attractive in clinical settings. They seem to have a contract with Sanofi to supply prefilled syringes. Production has started at their new plant in Pennsylvania, now if they can produce to meet expected market demand, and if they can defend their patent, they may well become a multi-bagger.

  • Report this Comment On September 23, 2009, at 2:11 PM, sisula wrote:

    I wonder how long will it take for The Motley Fool to admit that they were wrong on AOB ...

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Related Tickers

11/26/2014 4:06 PM
IO $2.56 Down -0.09 -3.40%
ION Geophysical Co… CAPS Rating: ***
ADY.DL2 $0.00 Down +0.00 +0.00%
Feihe Internationa… CAPS Rating: *
AOBID $0.00 Down +0.00 +0.00%
American Oriental… CAPS Rating: **
ICON $40.51 Down -0.05 -0.12%
Iconix Brand Group CAPS Rating: *****
NUAN $15.34 Down -0.25 -1.60%
Nuance Communicati… CAPS Rating: ****
SVNTQ $0.00 Down +0.00 +0.00%
Savient Pharmaceut… CAPS Rating: **
TRQ $3.46 Down -0.11 -3.08%
Turquoise Hill Res… CAPS Rating: ***

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