Penny stocks can make you rich.

Need proof? Every one of these multibaggers was once a penny stock:


Recent Price

CAPS Stars (5 Max)

5-Year Return

Almost Family (NASDAQ:AFAM)




NutriSystem (NASDAQ:NTRI)




Graham (AMEX:GHM)




Bolt Technology








Sources: Motley Fool CAPS, Yahoo! Finance.

The promise of outrageous returns has lured some of the world's best stock pickers, at times, into the ranks of penny stock investors. Peter Lynch has and still does enjoy the stock market's super-cheap seats. The Royce Low-Priced Stock fund has beat the market for a decade by betting on stocks trading near or below $10 a share, such as Netgear (NASDAQ:NTGR).

Even the All-Stars in our 120,000-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? I suppose because the SEC has warned us about them. 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 limit our choices to four- and five-star stocks whose market cap hovers comfortably between $250 million and $2 billion? Surely our new CAPS screener would return some winners, right?

This week, 81 stocks made the cut -- including our last topper, Silver Wheaton. Let's move on to Bare Escentuals (NASDAQ:BARE), a Rule Breakers pick with plenty of bullish followers in our CAPS community:


Bare Escentuals

CAPS stars (5 max)


Total ratings


Bullish ratings


Percent Bulls


Bearish ratings


Percent Bears


Bullish pitches


Bearish pitches


Data current as of Dec. 2, 2008.

As CAPS investor SmartNChic wrote two years ago:

I'm a woman and have used Bare Escentuals since they debuted. Product is great and quite different from other stuff out there. You can even sleep in it. Recently won Glamour magazine award for best foundation. A lot of my 20- and 30- something friends are switching. Thought you boys could use the 'inside' tip.

This, essentially, is the same thesis my Rule Breakers teammate, Sarah Goddard, gave in recommending the stock to subscribers in the August issue. "Bare Escentuals stands out not for what it puts into its products but for what it leaves out," Sarah wrote at the time. "Some studies have linked parabens (used as preservatives) and other chemicals to cancer, but even if that's debatable, why risk your skin with something you're not sure of?"

Mr. Market's Wild Ride has torpedoed shares of Bare Escentuals by more than 75% since -- more than enough to get cheapskate investor Seth Jayson interested on behalf of Hidden Gems subscribers.

Me, too. Bare Escentuals sells for just 3.6 times trailing earnings, versus 11 times earnings for peer Estee Lauder (NYSE:EL). The industry-average is 10.2, according to Yahoo! Finance. Either Bare Escentuals is done for, or it's far too cheap to ignore.

I suspect it's the latter, but I'm more interested to know what you think. Would you buy Bare Escentuals at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

See you back here next week with another penny stock from heaven. Fool on!

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.