Penny stocks can make you rich. Need proof? Every one of these multibaggers was once a penny stock:
|
Company |
Recent Price |
CAPS Stars
|
5-Year Return |
|---|---|---|---|
|
ON Semiconductor |
$7.76 |
***** |
143% |
|
Smith Micro Software |
$11.62 |
**** |
196% |
|
The Knot |
$10.70 |
*** |
206% |
|
Tata Communications |
$19.78 |
*** |
178% |
|
AspenBio Pharma |
$1.89 |
** |
163% |
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 RC2
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, 55 stocks made the cut -- including our last topper, CapitalSource.
My favorite penny stock this week is E*TRADE Financial
|
Metric |
|
|---|---|
|
CAPS stars (out of 5) |
**** |
|
Total ratings |
2,661 |
|
Percent bulls |
94% |
|
Percent bears |
6% |
|
Bullish pitches |
617 out of 643 |
Data current as of Oct. 1.
There are good reasons to like E*TRADE. Look at the insider action, for example. Executives and other insiders have been mostly buying shares over the past year. Recent sales belong to Citadel Advisors, a significant shareholder but not an insider in the purest sense of the word.
Other Fools like E*TRADE because of its assets, and because sidelined money is gearing up to get back into the Great Stock Market Game. As TMFeatnbybears put it in a pitch from earlier today:
They have home loans ... those will firm up. Money from the sides will come into brokerage. Lots of trading going on compared to last year. Expect 50-100% gain.
Do you agree? Would you buy E*TRADE at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.
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