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 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 1-800-Flowers.

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, 54 stocks made the cut -- including our last topper, Quiksilver.

My favorite penny stock this week is Agria (NYSE:GRO), a Chinese agriculture play that the Motley Fool Global Gains is watching closely. The details:

Data current as of Jan. 4.

China has been a hotbed for hot stocks. Universal Travel Group (NYSE:UTA) and Sinovac Biotech (NYSE:SVA) have quadrupled. KongZhong (NASDAQ:KONG) has tripled. Agria, a double over the same period, looks like a laggard by comparison.

But the gap may close sooner than some think. According to Capital IQ, investors price Agria at 0.17 times revenue to enterprise value. Translated, this means that investors are only willing to pay $0.17 for every dollar of revenue the underlying business generates.

That's somewhat understandable. Agria saw revenue fall 30% in 2008 and we don't yet have last year's numbers. Agria also recently suffered through management changes. This is a speculative pick, at best.

Regardless, rural China needs to get more from its fields, and Agria's seeding technology may help. Any success would benefit investors willing to take a chance on the stock at these depressed levels.

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