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

Ebix (Nasdaq: EBIX  )

$15.20

*****

810.2%

American Dairy (NYSE: ADY  )

$23.26

****

422.7%

TeleCommunication Systems (Nasdaq: TSYS  )

$8.85

****

251.2%

PolyMet Mining (NYSE: PLM  )

$2.97

***

575.0%

Life Partners Holdings (Nasdaq: LPHI  )

$19.73

**

553.3%

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 1-800-Flowers (Nasdaq: FLWS  ) .

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, 54 stocks made the cut -- including our last topper, Agria.

My favorite penny stock this week is Mahanagar Telephone Nigam (NYSE: MTE  ) , a comprehensive telecommunications services company serving India, New Delhi and Mumbai, specifically. The details:

Metric

Mahanagar Telephone Nigam

CAPS stars (5 max)

*****

Total ratings

296

Percent Bulls

98.3%

Percent Bears

1.7%

Bullish pitches

33 out of 35

Data current as of Jan. 29.

I'm interested in state-run Mahanagar Telephone because I'm interested in India. The subcontinent potentially offers investors the best opportunity for 2010. Mumbai and Bangalore, meanwhile, have the makings of the next great tech market.

Trouble is, Mahanagar Telephone isn't exactly an up-and-comer. The company was founded in 1986 and still gets the bulk of its revenue from basic fixed-line services. Cellular accounted for only 20% of the business as of last March's fiscal 2009 report.

Investors apparently don't like that ratio. But they may also be overselling the stock. Over 90% of the market cap is in cash and short-term investments. That effectively means that investors are paying merely $0.10 for each dollar of sales. Unless bankruptcy is imminent, that's far too low, in my opinion.

Now it's your turn to weigh in. Would you buy Mahanagar Telephone Nigam at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate. You can also weigh in via 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. Ebix is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services.

Fool contributor Tim Beyers is also a member of the Rule Breakers stock-picking team. He 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 owns shares of Ebix and is also on Twitter as @TheMotleyFool. Its disclosure policy was small and cuddly. Once.


Read/Post Comments (4) | Recommend This Article (17)

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 January 29, 2010, at 3:39 PM, softpro34 wrote:

    Wonderful Observation !

    MTE in my opinion is the best investment for the next decade. It is not for people who are looking at few cents of profits in either direction. IMO it is a $20 stock. I will mention few reasons why I feel that.

    Let us see the negatives first.

    1. Telecom business at its worst.

    2. Inefficiency at its peak

    3. Government employees used to getting more and more pay and pensions without doing anything.

    And now lets look at the positive side.

    1. Land....

    MTE has huge land in mumbai and delhi

    Anytime, the government will have to restructure it and unlock its value. If the government gives a hint that it is thinking in this direction, (which eventually it will) then this stock will open the next day at $10.

    If unitech (Mumbai real estate) which was quoted at Rs2 can reach Rs 1000, many mumbai cotton mills shares which were not traded at all can reach Rs 1000, Godrej properties can get listed at Rs 500, MTE has more land than all of them put together !

    Cant it reach Rs 500? (If not 2000) and even it it reaches 500, it would come to $20 per ADR.

    The downward risk is minimum. It has a strong support at $ 3.16. It may come down within the next few days, but it should be treated as a one time buying opportunity.

    All in my opinion of course.

  • Report this Comment On January 29, 2010, at 3:40 PM, softpro34 wrote:

    MTE in my opinion is the best investment for the next decade. It is not for people who are looking at few cents of profits in either direction. IMO it is a $20 stock. I will mention few reasons why I feel that.

    Let us see the negatives first.

    1. Telecom business at its worst.

    2. Inefficiency at its peak

    3. Government employees used to getting more and more pay and pensions without doing anything.

    And now lets look at the positive side.

    1. Land....

    MTE has huge land in mumbai and delhi

    Anytime, the government will have to restructure it and unlock its value. If the government gives a hint that it is thinking in this direction, (which eventually it will) then this stock will open the next day at $10.

    If unitech (Mumbai real estate) which was quoted at Rs2 can reach Rs 1000, many mumbai cotton mills shares which were not traded at all can reach Rs 1000, Godrej properties can get listed at Rs 500, MTE has more land than all of them put together !

    Cant it reach Rs 500? (If not 2000) and even it it reaches 500, it would come to $20 per ADR.

    The downward risk is minimum. It has a strong support at $ 3.16. It may come down within the next few days, but it should be treated as a one time buying opportunity.

    All in my opinion of course.

  • Report this Comment On December 13, 2010, at 2:46 PM, PENNYSTOCKLOVER wrote:

    GAP.TQ

    I know Chap. 11 has it scares with it but

    GAP.TQ

    is the best stock to buy.

    I bought it at .28 not it is .49.

  • Report this Comment On December 13, 2010, at 2:48 PM, PENNYSTOCKLOVER wrote:

    ALSO,

    BGEM

    Another one that is making the money here real soon.

    ENJOY!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1097766, ~/Articles/ArticleHandler.aspx, 10/23/2014 10:43:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement