What Are Good Penny Stocks?

A quick and easy definition of a good penny stock would simply be, we want to choose a company that is preparing for an upward move in the market.  However, that is an over simplification, since the actual question is this, “How do we know which company is a good penny stock, and which one is simply going to move sideway with little or any increase in value.

In order to answer this, let me first provide a little background about penny stocks and our methods of choosing a company.

GOOD PENNY STOCKS

Generally speaking, the term penny stocks and micro cap stocks can be used interchangeably.  Without getting over technical micro caps are based on capitalization, while penny stocks are determined based on their initial offering price.  While there are a variety of opinions, penny stocks and particularly good penny stocks are normally priced below $5.00 and available on the over-the-counter market and via the pink sheets.

The difficulty most investors face is not with defining a penny stock rather determining what is a good penny stock and how can I find it before the general public?  The answer to this is probably the most important part of making penny stocks a part of your investment portfolio.

Penny stocks, unlike blue-chip companies, often enter the marketplace with most people unaware of their existence, plans, or financials.  In almost all cases penny stocks do not rise or fall based on financials or fundamentals, rather on stock promotions.

PENNY STOCK PROMOTIONS: Stock promotion companies are given the task and paid a fee, to promote a particular company.  This is completely legal and done every day in the marketplace.  Stock promotion companies often have large mailing lists and contact their members via SMS, e-mail, fax, or any method that allows the investor to move quickly.

We are a culture bombarded by advertising, knowing this, how can the investor make an informed decision about which Stock Promotion Company is pushing a good penny stock?  The answer is simple, yet tedious and time-consuming; track the results over time.

By keeping detailed records of which offerings various Stock Promotion Firms advertise, then tracking the results, a pattern begins to emerge.  Given time and attention to detail, we can begin to see which firms push winners, and which are simply struggling to survive.  While no one can be right 100% of the time, statistical data will indicate which firms regularly push good penny stocks and which do not.

While it is possible to speak with your stockbroker concerning penny stocks, the best place to find this information is in a quality stock newsletter. You would have made the determination of which is a good newsletter after the above research was accomplished.

It is never advisable to put all your eggs (or financial resources) in one offering, and it is strongly suggested that you be diversified.  The word diversification can mean owning a variety of penny stocks, or represent the spokes on a wheel, with each spoke representing a different area of the market (penny stocks, mutual funds, CDs, real estate, etc.).

If you’re doing your own research you’ll of course want to look at the financial stability of the company, trading volume and business plan, all factors which will help you make a good penny stock choice.

When you do your own research, caution should be exercised since there are pitfalls that might not be immediately be apparent to someone new to penny stocks.  In order to make certain you are properly informed, it’s crucial you subscribe to a quality penny stock newsletter.

What you do with the information they provide is of course up to you, but at the very least it can help when making an informed decision in your search for a good penny stock.