Penny stocks refer to anything trading below $5. A big advantage to owning a penny stock is the enormous potential. There are many reasons for this. One is obvious, which is that the price is so low that if you get on board early and momentum picks up, you can make a fortune. Another advantage is that once a stock hits $5, it goes on the radar of large institutions. This can lead to large volume buying, which will drive the price up. Contrary to popular belief, finding the best penny stocks isn’t difficult. Many people believe penny stocks refer only to stocks that are trading under $1.00. They also believe they either trade only on the Bulletin Board or the Pink Sheets. This is not the case.
Of course, there is danger in buying penny stocks. That’s why it’s important to seek out the best penny stocks. Doing this can be time-consuming, but it’s relatively easy. All you need to do is find a list of small-cap companies trading below $5. If you’re having trouble finding this online, just buy any newspaper that has stock prices in its financial section. Go down the list and look at each company’s fundamentals. The first thing you want to look for is a lot of cash and no debt. The reason you want this is because companies like this are prime targets for being bought. When that happens, you can double your investment in one day. Another thing to look for is insider buying. This shows that employees, and/or employers, are confident in the company’s future. Finally, look at short interest. But be careful here. A lot of short interest, such as 15-30% can mean big trouble. On the other hand, if good news is released and people begin to cover their short positions, the stock can skyrocket.
The best approach is to find a penny stock with great fundamentals and patience. If you choose correctly, you can easily quadruple your money in one year. Buying stocks under $1 is riskier, but can also pay more. If you take this approach, consider scaling into a position opposed to buying all at once. Hopefully, this short guide can help you find the best penny stocks in the market.
