When we think of penny stocks our minds drift off to dreams of literally paying pennies for a stock that rockets in value so that it's worth dollars in the future. However, more often than not a stock trading for pennies is nothing more than a shell that typically goes to zero. It's why true penny stocks should be avoided at all costs.

However, the reason penny stocks should be avoided isn't because the stock price is less than a dollar. In fact, the Securities and Exchange Commission actually defines a penny stock as one that is trading under $5 per share. The definition really goes beyond the price as penny stocks are also typically not traded on a national exchange and these companies tend to have ultra-low market capitalization. It's the lack of oversight and tiny market caps that allow penny stocks to be easily manipulated by those that want to make money off of your dime. 

That's why investors need to first look past the stock price and instead look at the underlying business to make sure the company has real prospects to create real wealth, instead of being a ticker that can be manipulated on a screen. With that end, it is generally a really good rule of thumb to avoid stocks that don't trade on national exchanges and have market caps below $200 million -- these stocks are just much more sustainable to manipulation. 

That caveat aside, there will always be a draw to invest in stocks with "penny stock" prices as we dream that our investment could double and then double again. However, should an investor choose to speculate in that way, it should at least be intelligent speculation in a company whose stock has been beaten down, but still has a fair chance at a rebound. Further, an investor shouldn't speculate with money that they can't afford to lose.  

For those looking for an intelligent place to speculate, one sector that's filled with "penny stock" prices at the moment is the energy industry. Weak oil prices, and a lot of debt, has decimated the stock prices of several energy names. Below, I've selected five severely beaten down energy stocks with low single-digit stock prices that could rebound if oil prices pick up over the next year. However, a warning: While these beaten-down energy "penny stocks" could soar, each comes with an extra helping of risk that could obliterate the investment. Buyer beware.

1. SandRidge Energy (NYSE: SD)
SandRidge's stock has taken a major hit from plunging oil prices over the past year, falling from over $7 per share in summer 2014 to under $2 a share by spring 2015. The reasons for the collapse is the fact that SandRidge needed an oil price north of $80 to increase production and grow into its debt-filled balance sheet. However, the driller is working to reduce its costs so that it can earn the same returns at current oil prices that it enjoyed when oil was over $80. If the company can accomplish this before running out of money, SandRidge's stock could reverse course and head higher.

2. Energy XXI Ltd. (NASDAQ: EXXI)
If there's one recurring theme on this list it's that falling oil prices crushed the stock price of energy companies that had too much debt. That's certainly the case at Energy XXI as its shares fell from the lower $20 range to less than $4 over the past year. The culprit here is the company's massive debt, which is among the worst rated by Moody's. That debt, which was piled on when Energy XXI acquired a rival shallow Gulf of Mexico driller last year, has acted as a weight as oil prices plunged. However, oil prices are improving, and so are the prospects that Energy XXI can get out from under this weight.

3. Key Energy Services (KEG -47.37%)
Key is a bit of an oddity on this list as it's the only company that doesn't produce oil and gas. Instead, it makes money by providing oil-field services. The problem is that services it provides are volume-based and low-margin. The need for those services has fallen along with oil prices, leading to a big drop in Key Energy Services' revenue, which is worrisome due to its weak balance sheet. However, as oil and gas activity improves, so should Key Energy Services' prospects and its low-single-digit stock price.

4. Halcon Resources Corp. (HK)
Halcon is much like Energy XXI in that its credit rating is among the worst rated by Moody's. Its rating is bad because, like Energy XXI and SandRidge Energy, it piled on debt to expand its business when oil prices were much higher. That debt load left the company flat-footed when oil prices fell, forcing Halcon to scramble to secure its liquidity. However, Halcon recently conducted a debt-for-equity swap and now has enough liquidity to get it through the next few years, even if oil prices remain weak, with upside if prices improve.

5. Eagle Rock Energy Partners L.P. (NASDAQ: EROC)
The last name on this list used to have a debt problem, but it corrected that when it sold its midstream business in 2013. In fact, it now has some of the best debt metrics among upstream-focused master limited partnerships. Furthermore, the company has plenty of liquidity to pursue growth, whether organically or via acquisitions. What Eagle Rock needs now is for the market to realize the company is turning itself around, which would send the unit price up from its current low-single-digit perch.

Investor takeaway
There's one key theme among these energy companies: all had way too much debt, which upended their operations once commodity prices tumbled. However, all five are in the process of fixing their balance sheets. That puts them in position to potentially thrive as oil and gas prices improve and send their shares past the penny stock price territory.