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

Company

Recent Price

CAPS Rating (out of 5)

5-Year Return

American Oriental Bioengineering (NYSE:AOB)

$5.43

*****

271.9%

Nuance Communications (NASDAQ:NUAN)

$14.70

****

261.2%

American Dairy (NYSE:ADY)

$30.24

***

740%

Iconix Brand Group (NASDAQ:ICON)

$17.38

***

414.2%

Savient Pharmaceuticals (NASDAQ:SVNT)

$16.02

**

618.4%

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 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 Ivanhoe Mines (NYSE:IVN).

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, 49 stocks made the cut -- including our last topper, Limelight Networks.

My favorite penny stock this week is ION Geophysical (NYSE:IO), chief competitor of Motley Fool Hidden Gems pick Dawson Geophysical. The details:

Metric

ION Geophysical

CAPS stars (out of 5)

*****

Total ratings

670

Percent bulls

97.1%

Percent bears

2.9%

Bullish pitches

99 out of 100

Data current as of Sept. 20.

Each company specializes in seismic equipment that's useful for oil and other types of resource exploration. "I see a safer and more cost effective way to find minerals, oil, natural gas, and to map terrain for solar farms and wind power farms," wrote CAPS All-Star getrichdietrying earlier this month.

This member is not the only one who thinks this way. Fellow All-Star Teacherman1 and up-and-coming Fool A6EIntruder both see big potential in ION Geophysical, as do dozens of others. Only three of the last 99 Fools to rate ION say it will underperform the market, and none of those is ranked among the top 20% of investors in CAPS.

Do you agree? Would you buy ION Geophysical at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate.

More millionaire-making Foolishness:

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. American Oriental Bioengineering, Dawson Geophysical, and Nuance Communications are Motley Fool Hidden Gems picks. The Fool owns shares of American Oriental Bioengineering, which is also a Global Gains recommendation. Try any of our Foolish newsletter 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. 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.