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

Hansen Natural (Nasdaq: HANS  )

$37.20

****

818.5%

Rubicon Minerals (AMEX: RBY  )

$4.47

****

698.2%

Interactive Intelligence (Nasdaq: ININ  )

$17.33

****

309.7%

Medifast (NYSE: MED  )

$32.15

**

815.9%

Opko Health (AMEX: OPK  )

$1.74

**

397.1%

Sources: Motley Fool CAPS, Yahoo! Finance.

The promise of outrageous returns has periodically made even the world's best stock pickers into 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 Interactive Brokers (Nasdaq: IBKR  ) .

Even the All-Stars in our 145,000-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, 56 stocks made the cut -- not including our last topper, JA Solar.

My favorite penny stock this week is Newpark Resources (NYSE: NR  ) , an oil and gas field services provider. The details:

Metric

Newpark Resources

CAPS stars (5 max)

*****

Total ratings

272

Percent bulls

96.3%

Percent bears

3.7%

Bullish pitches

25 out of 27

Data current as of Dec. 22.

Bears will tell you that Newpark has already run too far, too fast. The stock is up mightily over the past 30 days. But over the past year -- a year in which the S&P 500 has risen more than 22% -- Newpark is up just 7%. The run could be just beginning.

"Oilfield services is booming with continuing demand for fossil fuels, P/E and price/free-cash flow are lowish, leaving a nice potential upside," wrote CAPS investor dxdoormat earlier this month.

There's truth in this Fool's assertions. According to Capital IQ, Newpark at present trades for less than four times its trailing free cash flow. That could prove cheap. Newpark's inconsistent cash flow growth has reached into the triple digits and beyond in two of the past three years. A 2010 rally in oil and natural gas prices could lead to further gains.

But that's my take. Would you buy Newpark Resources at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate. You can also weigh in through the comments box below.

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. Interactive Brokers is a Stock Advisor selection. Hansen Natural and Interactive Intelligence are 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.


Read/Post Comments (3) | Recommend This Article (10)

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 December 22, 2009, at 4:51 PM, captainccs wrote:

    I recently discovered that Hansen's Natural (HANS) sells obesity and type II diabetes so I'm dropping the stock.

  • Report this Comment On December 24, 2009, at 1:20 PM, moblackty wrote:

    Would not own Newpark for anything. Last I heard

    they were trying to survive by getting China $. They are a very low tech provider of Oil and Gas services

    with a not to good reputation in the field. The have been around for a long time and have yet to do good sooooo!

  • Report this Comment On December 28, 2009, at 9:19 PM, carpediem0008 wrote:

    Take a look at PBTH.ob. Philip Frost is Chairman and has a very big economic interest.

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