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 |
$31.89 |
***** |
668.4% |
Illumina |
$43.43 |
*** |
1,162.5% |
True Religion |
$27.45 |
** |
1,020.4% |
Seabridge Gold |
$25.77 |
** |
640.5% |
PowerSecure International |
$9.04 |
** |
340.9% |
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.
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, 59 stocks made the cut -- including our last topper, Allis-Chalmers Energy.
My favorite penny stock this week is FelCor Lodging Trust
Metric |
|
---|---|
CAPS stars (out of 5) |
***** |
Total ratings |
102 |
Percent bulls |
90.2% |
Percent bears |
9.8% |
Bullish pitches |
9 out of 10 |
Data current as of Oct. 15.
I'll be honest: This is a scary bet. FelCor recently took on $636 million in new debt, which pays creditors 10% annually till maturity in 2014. That's not quite as usurious as the terms Sirius XM
I still like the stock for three reasons:
- The company manages properties for well-known hotel brands, including Hilton and Marriot International
(NYSE:MAR) . - The stock trades for little more than the tangible value of the assets it holds.
- Insiders were buying shares in June, and in years past, they've bought other stakes at prices far higher than what we're seeing today. The last open-market sale of FelCor shares was in May 2007, at north of $25 per share. Currently, the stock trades for about $4.41 per share.
So I'm a buyer here, and I've rated the stock "outperform" in CAPS as a result. Do you agree? Would you buy FelCor Lodging Trust at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate. Alternately, feel free to leave comments in the space below.