If you are looking for a low-initial-cost investment that may yield high returns, penny stocks may be the answer. The key with these high-risk investments is timing, and it's important to research and know the company before you buy. Penny stocks are recognized by the SEC and trade at a maximum of $5 per share—the companies generally have very low market cap. Be wary of the bad apples, but know there are good apples too. As always, consult with your financial advisor prior to making investing decisions. Let's take a look at 4 places you can find a diamond in the rough of the penny stock trading world.

1. Blue-Chip Stocks: In order to be traded on one of the larger exchanges, such as NASDAQ or the New York Stock Exchange, a company must meet certain listing requirements that include filing an annual financial report. Companies that offer penny stocks do not meet these minimums and therefore are traded on smaller exchanges. That being said, at a $5 or less price per share a stock can be defined as "penny," even when from a company traded on the bigger stock markets. There are companies whose shares have fallen below that dollar amount and still remain within their listing eligibility requirements. These could end up being hot penny stocks to buy, and if the company's shares fell for reasons other than financial failure you may profit with this type of trade. Examples of these from 2013 are Rosetta Genomics and NII Holdings.
   
   
2. Popular Retailers: Several companies, namely household item retailers, saw a decline in business and financial profitability with the near collapse of the real estate market. While many had large market caps at one time, their shares fell to just pennies. Some retailers that survived and ended up being great investments for those that bought low are Pier 1 Imports and True Religion Apparel. The latter of which began as a penny stock scam, but ended up being a legitimate purveyor of high-end denim that caught on for the masses. Investors that held on to their shares saw an incredible windfall as stocks rose from 67 cents to nearly $26 over an eight-year period.
   
   
3. Technology and Medical Companies: With ever improving technological and medical advances, it would seem that investing in one of these industries would yield a guaranteed profit. But the positives and negatives here are closely related—advances mean replacement of once-necessary components. Concur Technologies, a software company based in Washington, saw great financial success until the technology bubble burst in the late 90s. Now with a company revamp they have once again risen and found their place back on top as a supplier for many businesses internationally. Shares were once as low as 13 cents and now trade at a healthy $67 per share. Quality Systems is a medical technology company that has experienced a similar pattern. While their current shares aren't nearly as high as Concur, they have reestablished themselves as industry leaders.
   
   Where have you been able to find valuable penny stocks?