Penny Stocks
Penny Stocks, despite its pejorative name, are good investments especially in these times when the big cap companies’ stocks at the major exchanges are unstable due to insecurity in the financial industry. Penny stocks are the shares of stocks of small and emergent companies, as well as bigger companies that do not wish to or cannot comply with the SEC requirements regarding disclosure. They usually trade for less than $5, and are quoted on the Over The Counter Bulletin Boards, or OTCBB.
 You’ll know if a company is issued as a penny stock if it has a small market capitalization and trades outside of the major stock exchanges such as the Nasdaq, New York Stock Exchange (NYSE), and Dow Jones Industrial Average (DJIA). You can only find Penny Stocks at the OTCBB and the Pink Sheets.
Penny stocks are highly speculative, and are heavily influenced by events or news such as:
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A new patent – The company announces that it has just
come up with and patented a new product, meaning
they’ve got a monopoly on that product. |
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A tie-up with a major company – When a big company chooses to do business with a penny stocks company, the market sits up and takes notice because this means the big boys BELIEVE in the small one.
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Outstanding quarterly financials – Good quarterly financial statistics may be due to a new contract, an increase in royalty fees, or a bigger demand for the company’s products or services. |
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Escaping bankruptcy – When a company files for bankruptcy its share prices will zoom down. But when it shows that it has a detailed plan to get out of the red, investors will come and buy its penny stocks shares, which will then continue to rise again. |
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Reverse merger – Many private companies use this as an alternative method to go public instead of the lengthy process of issuing IPOs. The private company buys the shares of a public company – usually shell companies – and then merges the shell company with its own, and the private company becomes an entirely new entity – now public. |
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Insider buying – When the employees of a company buy shares and acquire part ownership of the company, it shows their confidence and investors will take notice and do the same. |
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Going to the major stock exchange – A penny stocks company that announces that it is on its way to the Nasdaq or Amex is telling the world that it has met the SEC requirements and can now be considered one of the big boys. |
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Share buyback – When a small company buys back its shares, the number of shares floated on the market decrease, and demand rises. That’s also a signal that the company has money. |
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Big contracts – Winning a multi-million dollar is a huge plus for a small
company, and even though technically the company isn’t holding on to the money yet, it will reflect on their revenues and share prices will go up. |
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Globalization – When a company decides to go international, it increases its customer base, and therefore its potential revenue. It also shows that it can afford to set up and fund its overseas operations. |
Sounds easy? These are just a few of the things we look at when we review penny stocks companies. The indicators that we mentioned above are only the tip of the mountain. Analyzing companies and stocks also involves fundamental analyses and financial ratios. We’ll make it even easier for you by doing the number crunching for you. In addition to our numerical results, we’ll tell you why we recommend particular stocks, and which industries we think are the best to invest in. You’ll get all these if you subscribe to our free Newsletter, which will give you information that you won’t find anywhere else. |
