There
is no doubt that penny stocks are a risky and thinly traded breed of stocks
issued by relatively tiny companies. Also, the SEC does not require penny
stocks to follow their reporting rules.
There is no doubt that penny stocks are a risky and thinly
traded breed of stocks issued by relatively tiny companies. Also, the SEC does
not require penny stocks to follow their reporting rules. This combined with
unclear or unverifiable financials can make this stock seem like something to
avoid altogether. Penny stocks can be dangerous for investors of all experience
levels but especially for amateurs just getting their feet wet. Here are five
tips to help find the best penny stock picks.
1. Profit
First off is the company you are interested in investing in experiencing any
sizeable profits. Better yet is their profit to debt ration favorable. Youd be
hard pressed to find one of these little companies without debt but that doesnt
mean you cant be picky. In this case the least amount of debt with the most
profit will be a better investment. Another thing to watch is how progressive
the debt payoffs have been. This would be a sign of good or bad financial
management.
2. Industry Trends
This is one of those methods that almost all people use anyway. If there is a
high demand for oil then people instinctively want to go buy oil stocks. The
only problem with this kind of trend analysis is it really isnt forward looking
analysis. This is just waiting and seeing which doesnt get you in on the ground
floor of and investment before the public takes notice. Investing ahead of an
industry trend is far better. So look for stocks in industries that are the
edge of more demand.
3. Personal Interest
Theres a saying that you do well at things you enjoy to do. This makes logical
sense and it works with stocks as well. If you invest in something that
actually interests you then you will naturally be more studious and make more
of an effort to choose the best stocks. It can be very boring researching
stocks that dont interest you and you are likely not to be as thorough as you
should be.
4. Tenure
How long has the company been in business? This is not to say that investing in
newer companies is a bad idea but its more likely to be safer investing in a
more established company with some kind of track record.
5. Bad Behavior
Last tip is an obvious one. Stay away from companies whose operations or
transactions have been questionable. Even if the bad press is not completely
true it will be difficult for a company to recover in the short and maybe even
long term.
