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


Recent Price

CAPS Stars (out of 5)

5-Year Return

Hansen Natural (NASDAQ:HANS)




Rubicon Minerals (AMEX:RBY)




Interactive Intelligence (NASDAQ:ININ)




Medifast (NYSE:MED)




Opko Health (AMEX:OPK)




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 Interactive Brokers (NASDAQ:IBKR).

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, 56 stocks made the cut -- not including our last topper, JA Solar.

My favorite penny stock this week is Newpark Resources (NYSE:NR), an oil and gas field services provider. The details:


Newpark Resources

CAPS stars (5 max)


Total ratings


Percent bulls


Percent bears


Bullish pitches

25 out of 27

Data current as of Dec. 22.

Bears will tell you that Newpark has already run too far, too fast. The stock is up mightily over the past 30 days. But over the past year -- a year in which the S&P 500 has risen more than 22% -- Newpark is up just 7%. The run could be just beginning.

"Oilfield services is booming with continuing demand for fossil fuels, P/E and price/free-cash flow are lowish, leaving a nice potential upside," wrote CAPS investor dxdoormat earlier this month.

There's truth in this Fool's assertions. According to Capital IQ, Newpark at present trades for less than four times its trailing free cash flow. That could prove cheap. Newpark's inconsistent cash flow growth has reached into the triple digits and beyond in two of the past three years. A 2010 rally in oil and natural gas prices could lead to further gains.

But that's my take. Would you buy Newpark Resources at today's prices? Let us know by signing up for CAPS today. It's 100% free to participate. You can also weigh in through the comments box below.

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. Interactive Brokers is a Stock Advisor selection. Hansen Natural and Interactive Intelligence are Rule Breakers recommendations. 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.