Candlestick Trading Blog
Pick the Best Stocks – Penny Stocks
Penny stock investing has become a popular method of investing even though the SEC does not require penny stocks to follow their reporting rules. It is for this reason, and others, that penny stocks are seen as a risky investment. When looking to invest in penny stocks, there are a few things that you should pay attention to. This article will discuss tips for selecting the best stocks as well as provide a basic definition of what penny stocks are.
Penny stocks are common stocks that are sold for an amount between one and five dollars. They are considered over the counter stocks (OTC) meaning that they are traded through the Pink Sheets for the Over the Counter Bulletin Board. The best stocks of this nature have the potential for rapid growth which can be as high as several hundred percent in just a few months, however, they are extremely risky. The good thing about investing in penny stocks is that you can invest very small amounts of money and still have thousands of shares. Just be sure that you do sufficient research because this type of investing can be very dangerous for the amateur and even the most experienced investors who do not take the time to carefully build a list of penny stocks to monitor.
The first tip for selecting the best stocks is to evaluate the potential profit for the company of interest. Determine if they are experiencing sizeable profits by calculating the price to earnings ratio. If they have debt, then you must find out how consistent the company has been with paying off their debt. This is a great indicator of a company’s financial management. The second thing you want to evaluate is industry trends in relation to your selected stocks. This is tricky because you don’t wan to jump on the bandwagon for the obvious hot penny stocks. Instead you should be on the look-out for stocks that are on the edge of more demand. This requires true skill and a lot of effort on the investor’s part, which is unfortunately not something that many investors do. It is also important to look at a company’s tenure in order to select the best penny stocks. A company that has been in business for along time is more established and should have a proven track record. While tenure is important, it is not absolutely necessary when you buy penny stocks. As described above, if you can find an up-and-coming company with great profit potential, then you should invest in it as well. The hard part again is determining their profit potential without a lot of past data since it is a new company. Another very important tip is to stay away from company’s that have in the past been looked at for questionable practices. This while obvious, is still very important and is definitely worth mentioning. The last tip for selecting the best stocks is to invest in stocks that you take a personal interest in. You will be more inclined to study and research something that interests you, therefore making you educated on your stock picks.
Penny stocks have great potential for growth with very high risk. They tend to get a bad reputation because of the high potential for scams associated with this type of investing. While this is true, it can be said, that like any type of stock investing, if you do your homework and seriously study your stocks, you can make money. Pick the best stocks that you yourself have evaluated and don’t fall for the get rich quick ‘hot stocks.’ You will surely lose money if you look for short-cuts with this type of investing.
Online Stock Market Reviews presented live via the internet by Stephen Bigalow