As a growth guy who focuses on sales and earnings, I have very strict guidelines as to how I screen penny stocks. Small stocks come with big risk, and there aren't always the concrete numbers I demand in these investments.

However, if you do your homework, you can often separate the poor penny stocks from the shiny picks that could deliver big profits overnight.

Here are three of my favorite penny stocks right now:

BioFuel Energy Corp. (BIOF) is a perfect example of my penny stock strategy. BIOF produces and sells ethanol and its byproducts through its two production facilities in the Midwest. Each site has a capacity of approximately 115 million gallons per year, giving Biofuel Energy a big foothold in the emerging ethanol marketplace and green-energy industry.

BIOF stock has flopped in 2010, down about 40% year to date, but this penny stock is still up almost 150% since September 2009. If BIOF rebounds from its current valuation of around $1.70 to the $4 share price it saw at the beginning of the year, investors would more than double their money.

Magellan Petroleum Corp. (MPET) is a more conventional energy stock and is engaged in the sale of oil and gas, as well as exploration. The company primarily owns interests in Australia and the United Kingdom.

Shares are up 20% year to date and still going strong, giving this penny stock 76% gains in the past 12 months -- more than three times better than the broader market. I give Magellan top marks for its earnings growth and rate the stock a buy overall. In May, MPET reported that its fiscal Q3 profit quadrupled. So though the PE ratio of this stock may look big right now, it appears MPET is creating enough growth to drive share prices even higher.

Abraxas Petroleum Corp. (AXAS) is an independent energy company primarily engaged in the development and production of oil and gas across the U.S. The on-shore oil company hasn’t had to deal with as much of the fallout of the Gulf oil disaster. And with my top rating for sales growth and for buying pressure, AXAS appears to have the wind at its back.

Shares of this penny stock are up a stunning 50% so far in 2010 and 150% in the past year but are still cheap at just under $3 a piece as of this writing. Simple trading strategies that involve following the money would really connect well with the performance of AXAS.

Penny stock investing is exciting because these investments by nature have tremendous profit potential. Low-priced small-cap stocks don't have to move the needle very far to see a huge jump in share price and deliver big gains to investors. What's more, penny stocks are often agile and quick to adapt because of their small operations and can see groundbreaking changes that deliver big returns in a matter of months -- as opposed to blue chip stocks that take years to roll out growth strategies.

For my complete list of the 5 penny stocks to buy now, follow the link.

 

As of this writing, Louis Navellier did not own a position in any of the stocks named here.

 

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