Penny stocks are best picks for those who want to invest on low priced stocks with good profits. But, before investing in penny stocks, investor must have sufficient background information related to the stock they are planning to buy. They should gather information about the companies financial performance and quality of the top management along with other useful information like company’s future investment and business plan.
What are your reasons for getting involved in penny stocks?
• Enthusiasm / Enjoyment.
• To make more money.
• You have some inside knowledge or specialized knowledge that you can profit from.
• You have a firm belief in a concept or idea of a company, you think the stock will explode in price.
• You are not in a mood to miss the boat, while others are getting involved.
• You always want to increase your portfolio’s risk/reward exposure.
• To learn penny stock trading, or just of trading in general.
• You are in a position to pick winning stocks.
• A more expensive stock which you purchased took a price dive, and now you are holding a ‘penny stock’ unintentionally.
• To diversify your stock investment portfolio.
Penny Stocks are traded only on the pink sheets and over the counter bulleting board (OTCBB) so available details are usually vague. OTCBBs are not bound to provide any information about the companies operation and performance. Investors can find important and useful information through newsletters that are regularly published by penny stock brokers, penny stock network and the various websites that monitor trading of penny stocks. These websites bring out considerable listing of recommended picks on every day basis.
Penny Stocks are also traded on NASDAQ Small Cap Market. Stock which are listed here have regimented reporting requirements, and they have to adhere with these to maintain their listing. This helps investors to get access to the company’s financial results and information on the ongoing reports. Usually, the stock shares listed here will be $1.00 and up. If the stock shares of a company on the NASDAQ SmallCap starts trading for less than $1.00, the exchange usually discard these stocks which forces them them to drop down to the OTC-BB. Various financial quote and news services provide cover on shares which are traded on the NASDAQ SmallCap market, so it enables greater information visibility.
Brokers trading in penny stock also maintain their own databases on historical market trends, especially stocks that are actively traded. The newsletters by these penny stock websites carry analysis of the market trends in penny stocks along with other details. Buy and sell recommendations are also published in such newsletters. Hence investors must subscribe to such newsletters for best gains in penny stock trading.
Web-based networks and blogs also give useful insights into penny market trends. Information provided by these sources would save an investor from likely financial traps that scammers might have laid for gullible investors of penny stocks.
Hot Penny Stocks trade from .001 of a penny to $5.00.These stocks have tremendous reward potential Some of them have risen from 25 cents to $20.00.
How to Pick Best Penny Stocks
1) First, you have to understand why penny stocks are considered a risky investment. Penny stocks are the most volatile and most unpredictable form of investment in the stock market. There are various companies which usually have no track record of solid financial performance due to which penny stocks can get manipulated.
2) You should try to get at least one year’s experience dealing with mid- and large-cap stocks first. You must be well versed in reading a balance sheet, income statement, and cash flow statement during this phase.
3) You must identify which penny stocks to reject right away:
* Penny stocks which do not get traded on one of the major U.S. exchanges (aka bulletin board or over-the-counter [OTC] stocks)
* Companies having less than $10 million in revenue annually.
* Purchasing penny stocks from industries that you don’t like or understand well (based on your experience)
4) You should look for those companies that have consistently generated revenue and are growing. You need to avoid companies having heavy debt load.
5 Instead of comparing share prices, you should compare price per share against book value per share (assets minus liabilities).
6) You should purchase penny stocks from companies which are at a very low multiple on their cash flow (ideally under 6 times)
7) Restrict any tiny stock to no more than 5% of your stock portfolio.