The Next Million-Dollar Penny Stock

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

Sources: Motley Fool CAPS, Yahoo! Finance.

The promise of outrageous returns has periodically made even the world's best stock pickers into 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 GrafTech International (NYSE:GTI).

Even the All-Stars in our 145,000-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, Melco Crown Entertainment.

My favorite penny stock this week is JA Solar (NASDAQ:JASO), a Chinese maker of photovoltaic cells that last appeared in this column in January. Today's details:

Data current as of Nov. 26.

Can solar rally any more? After a miserable 2008, solar suppliers are producing more income and generating higher returns. Trina Solar (NYSE:TSL) beat the average analyst estimate by more than $0.50 per share. Canadian Solar (NASDAQ:CSIQ) has also proven to be a winner.

But some investors believe that JA Solar is setting itself apart from both of them -- and the rest of the industry -- by betting on innovations in silicon ink. They may have a point. What we don't know is whether the technology, created by Innovalight, is the game-changer JA Solar and its fans believe that it can be.

For its part, JA Solar's management said during its third-quarter conference call with investors that pricing has hit "the sweet spot," reflecting pent-up demand. Managers also report that orders exceeded capacity by two to three times in September.

Do you believe that's a sustainable pipeline? Would you buy JA Solar at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate. Alternatively, feel free to leave comments in the space below.