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

Company

Recent Price

CAPS Stars

(5 Max)

Five-Year Return

Dynamic Materials (NASDAQ:BOOM)

$10.13

*****

553.5%

Meridian Bioscience (NASDAQ:VIVO)

$16.90

*****

310.2%

True Religion (NASDAQ:TRLG)

$12.16

**

1,047.2%

Sterling Construction

$19.38

**

396.9%

SIGA Technologies (NASDAQ:SIGA)

$4.87

**

160.4%

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 and still does enjoy the stock market's super-cheap seats. 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 Hecla Mining (NYSE:HL).

Even the All-Stars in our 130,000-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 doesn't exceed $2 billion, but is at least $250 million? Surely our CAPS screener would return some winners, right?

This week when I ran it, 72 stocks made the cut -- including our last topper, International Coal. Let's move on to Liberty Media Interactive (NASDAQ:LINTA), which has a small but mostly bullish following in our CAPS community:

Metric

Liberty Media Interactive

CAPS stars (5 max)

***

Total ratings

127

Percent Bulls

90.6%

Percent Bears

9.4%

Bullish pitches

10 out of 10

Data current as of April 7, 2009.

My interest in Liberty follows from my interest in Sirius XM Radio (NASDAQ:SIRI). Fools know I'm bearish when it comes to the satellite radio supplier. At its current valuation, I sense that risks related to debt, dilution, weak partners, and emerging competition aren't being compensated.

And yet I could be wrong. Heck, I hope I'm wrong. Betting modestly on Liberty would provide juice for my portfolio were Sirius to succeed, as others believe it will. If not, I'd lose little -- or maybe nothing.

See, at Liberty, Sirius XM is one of many plum properties. "Interesting mix under one umbrella. I don't like the holdings in [Sprint Nextel] and some others, but [DirecTV], Expedia, and more are some nice holdings," wrote CAPS All-Star rofgile in February. "Now they will also have a 40% stake in XM-Sirius, which is huge. Seems like they are running an interesting mega media corporation."

Agreed, but that's my take. I'm more interested to know what you think. Would you buy Liberty Media Interactive 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!

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.

Dynamic Materials is a current Hidden Gems recommendations. Sprint is a Inside Value recommendation. Try any of these Foolish 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. The Fool owns shares of Dynamic Materials. 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.