3 Stocks Under $3 That Could Double in 2012

For those of you who've followed my articles over the past year and change, you know I am more than willing to accept the risks and rewards associated with small and micro-cap stocks. The allure of small-cap investing is that it generally offers faster growth and a higher reward potential if you're correct. Unfortunately, with little tolerance for errors, traders are more than happy to punish small-caps more severely for their failures.

As I often like to do, I spent the extended weekend looking for three companies under $3 that have the tools to double from their current levels. I attempted to focus on sustainable growth as well as locate companies that would have the catalysts needed to move their stock price in 2012. Although these aren't formal buy recommendations, I feel this is a starting point from which you can research these companies further.

Here they are, in no particular order:

Aeterna Zentaris (NAS: AEZS)
What would a bullish list of mine be without Aeterna Zentaris? 2012 is actually poised to be an exciting year for Aeterna with phase 3 clinical data due out on perifosine, its late-stage colorectal cancer and multiple myeloma experimental drug, by mid-year. Aeterna has licensed out perifosine to Keryx BioPharmaceuticals (NAS: KERX) in North America, but outside of two other licensing partnerships in South Korea and Japan, it still holds the rights to the drug worldwide. I would think approval of perifosine by the FDA should almost assuredly give the stock a huge boost from its current price under $1.70. With a strong pipeline of 11 molecules, the sky seems the limit for this micro-cap biotech.

Golden Star Resources (ASE: GSS)
As my original selection for my 10 Small Caps to Rule Them All and a personal holding in my portfolio, suffice it to say I'm feeling pretty good about Golden Star's prospects after a dismal 2011. With this gold miner actually trading below its book value and the prospects for its vast gold reserves at its Bogoso/Prestea mines improving, I feel 2012 could be the year that Golden Star breaks the trend of break-even results. If anything, with the company valued at a mere 5.5 times forward earnings, it deserves buyout consideration from one of the larger players in the sector. As long as the price of gold doesn't fall through the floor in 2012, Golden Star should have a fantastic year.

Sealy (NYS: ZZ)
There's a lot of negativity surrounding this mattress maker, and by the looks of its burdensome $786 million in debt, I can see why. But, short-sellers may find themselves in a dangerous position this year, with Sealy reasonably profitable once again and growing revenue by 4% in its most recent quarter. The driving force behind Sealy's sales in 2012 should be consumers' willingness to accept price hikes, something they had been unwilling to do in previous years. With Sealy back to profitable and insiders buying shares, the recipe for a major short squeeze is possible. This could be a stock that gives investors a solid gain and a good night's sleep in 2012.

Foolish roundup
It wouldn't take much for these three stocks to double in 2012 if they can cast off the stigma of years of underperformance. All three have the proper catalysts in place; now let's see if they can all capitalize on them.

What's your take on these three tiny tots? Share your thoughts in the comments section below and consider adding these three stocks to your free and personalized watchlist so you can keep track of the latest news with each company.

At the time thisarticle was published Fool contributorSean Williamsowns shares of Golden Star Resources, but has no material interest in any other companies mentioned in this article. He may not always be right, but he loves a good challenge. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policythat has a knack for telling the truth.

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