Penny stocks can make you rich. Need proof? Every one of these multibaggers was, at one time, a penny stock:


Recent Price

CAPS Rating

(out of five)

Five-Year Return

McDermott International (NYSE:MDR)








Insteel Industries




Allos Therapeutics (NASDAQ:ALTH)




Force Protection (NASDAQ:FRPT)




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 Gammon Gold (NYSE:GRS).

Even the All-Stars in our Motley Fool CAPS community of 135,000-plus members 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, 55 stocks made the cut -- including our last topper, Northgate Minerals.

My favorite penny stock this week is SiRF Technology (NASDAQ:SIRF), a maker of chips and other geekery that helps devices discern where they are in the world:


SiRF Technology

CAPS stars (out of five)


Total ratings


Percent Bulls


Percent Bears


Bullish pitches

133 out of 140

Data current as of June 19, 2009.

SiRF has soared since the beginning of the year, padding the CAPS portfolios of the many All-Star investors who have rated the stock "outperform."

Of the 26 Fools to have rated the stock since January, 14 are ranked in the top 20% of the community, and of those, only one thought SiRF would underperform. Oh, how wrong that was.

But can the stock keep its winning streak alive? I think so. Mobile platforms are only now beginning to test the boundaries of what's possible when phones are location-aware via Global Positioning Systems and the like. Take Apple's (NASDAQ:AAPL) newest iPhone -- the 3Gs. Yesterday, it added a compass. SiRF's technology makes this sort of software function as it should.

My guess is that there will be more location-aware software and that SiRF will have a huge role in enabling it. I've rated the stock to outperform as a result. But that's me. I'm more interested in knowing what you think. Would you buy SiRF at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

More millionaire-making Foolishness:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.