Todays Hot Penny Stock

Penny stocks are very commonly seen as short-term investment rather than long-term investment stocks, because of their very volatile nature. Investing in a penny stock for a long-term might not be in your best interest because of the earlier mentioned volatility, which is why investors who venture into this territory understand that the nature of the market requires that they be ready to buy or sell at a moment’s notice.

In buying penny stocks there are factors that must be put into strong consideration such as, the financial stability of the company, business plan, and good trading volume. Also if you want to invest in penny stocks, you should be aware that there are lots of bogus newsletters that claim to give stock recommendations that work. In actual fact most of them will loose you more money than they can ever make you, but you will also find that there are few newsletters that deliver good results.

After you have done a proper research into the company stock you want to buy, your next task will be to decide what sort of investor you intend to be. Majority of people who invest in penny stocks are day traders and some short-term traders, but the bottom line is that many hold their stocks for few days to few months. However those who hold their stocks longer than one year have trading plans which they follow and you should not hold because others are holding.

If after due diligence you still think that penny stocks sound like your kind of investment, then your next line of action will be how to go about investing. You can buy penny stocks on the internet via an online stock broker that is registered (be careful what broker you choose to go with) and you can also buy through a broker that runs a brick and mortar business (broker’s firm).

Penny stocks can be a very good investment if you trade with care and get proper education on how to trade penny stocks.

Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.

1. Penny Stocks are a penny for a reason.

While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker’s money for an IPO. This doesn’t make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.

2. Trading Volumes

Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.

3. Does the company know how to make a profit?

While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?

If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.

4. Have an entry and exit plan - and stick to it.

Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at $0.10 and sell it at $0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is $10 000, a 20% loss is a $2000 loss. Do this 5 times and you’re out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.

If your plan was to sell at $0.12 and it jumps to $0.13, either take the 30% gain, or better still, place your stop at $0.12. Lock in your profits while not capping the upside potential.

5. How did you find out about the stock?

Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.

Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.

How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You’ll start to notice quickly if you have subscribed to a good newsletter or not.

One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you’ll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?

Many of us who trade in penny stocks do it on a part-time basis. But it can be very difficult to keep up with all the data that is available to us through the 24 hour media and the Internet. Add to that all of the data that we can access with our online trading accounts. Finding hot penny stocks is a 24 hour a day job, and you may only have one or two hours on average.

So how can you make the best use of your time and still get the all the hot penny stock tips? A smart thing to do is to make use of penny stock experts that are tackling this subject on a full-time basis. Here are 3 methods you can use that do not take a lot of time:

1. Visit Trading Forums

Any subject that makes people money is going to have dozens of forums available. Traders like you visit these sites to get insight and ask the experts their opinions. Beware though, because not everyone is as expert as they claim to be and some may have a hidden motive for recommending a stock.

To find these forums, just do a search on “online trading forums” or “penny stock forums”.

2. Stock Picking Sites

There are also web sites where penny stock analysis and hot penny stock picks are discussed daily. Two examples are Dr. PennyStock and StockEgg. Usually, this kind of site will support a recommendation with analytical data or will give historical performance trends for past picks. This gives you some independent way to evaluate the picks.

To find these sites, search for “hot penny stocks” or “penny stock recommendations” and sort through the list.

3. Stock Picking Newsletters

Last but not least, there are stock experts who issue their picks only to subscribers or their newsletter. Even though it may cost you a few bucks, give this one some thought. With all the un-policed content on the Internet, these experts are making a business out of their stock recommendations. That counts for something. Recently, I have been following stock promotions as a way to identify penny stocks that are beginning a powerful rising trend.

Be sure to evaluate the credentials of the expert. If you find one that you like and trust, then you will be able to trade with some of the insight of a full-time, professional investor.

Simply search for “stock newsletters” and sort through the list.

The most valuable thing you have to invest is your time. And you may not be in a position to invest too many hours looking for hot penny stocks. Use these 3 sources to make the most of the time you do have to make a successful online trading career.

Best penny stocks will make you rich, and the worst ones will make you broke. It’s as simple as that. Penny stocks are some of biggest ways to lose and make money around, and the difference is usually the quality of information when choosing them. Read on to find out what qualities to look for in the best penny stocks.

Quality 1

You want a high PE, this is a great indicator of the best penny stocks.. PE, or Price-Earnings ratio shows roughly how much each investor pays per share for the profit generated by the company. This is calculated by dividing the price of the stock by the Earnings Per Share figure. This measurement is one of the most common in the trading world, so get used to using it. Once you calculated the figure, you compare it to the PE of other stocks in the market, or even better, those in the same industry sector. If yours is noticeably higher, chances are it’s going to put the price up.

Quality 2

The best penny stocks don’t only have a high PE, they also have a LOW PEG. PEG stands for Price/Earnings/Growth, and is calculated exactly like that, work out the Price-Earning ratio as mentioned before, and then divide that by the analysts’ projected earnings per share over the next 3 or 5 years. Traditionally, low PEGs are better, and many pro traders won’t consider anything with a PEG over 1.0.

Quality 3

Another fundamental aspect to consider for penny shares, and other shares in general is cash flow. A lot of people tend to forget about this, as the penny shares are so cheap even a slight price rise can bring tidy profits. Just be aware that a company with non existent or reducing levels of profit can’t sustain a share price indefinitely, it will almost certainly need to drop at some point to reflect the lack of profit.

Quality 4

Lastly, another useful quality present in the best penny stocks is steady and competent management. At first glance it seems like something you could never possible find out, but it’s just another calculation to be made. All you do is divide the annual profit figure by the annual sales figure, to get the profit margin. Put simply, the larger the profit margin the better. A company that needs a billion bucks in sales to turn a profit is generally not as well managed as a company that takes 10 million to make 2 million. Make sense?

As you’ve seen, the penny stocks and shares world can be a minefield, so hopefully this article will help you choose the best penny stocks. Click the links below for more help.

Article Source: http://EzineArticles.com/?expert=Felix_Gould

Ask any investor what a stock trading under $5 is and they will tell you it is a penny stock, microcap stock, or nano stock. These three terms are for the most part interchangeable. However the broader definition of a penny stock refers to a business’s aggregate value of its outstanding common shares, are more commonly known as its market capitalization rather than its stock price. However there is no set term that completely defines a penny stock.

To calculate the market capitalization of a company (the market cap) you must multiply the stock price of the company by the amount of shares that are outstanding. By carrying out this calculation you can find out what the total dollar value of all shares in the company are at any given moment in time. Penny stocks are not traded on a stock exchange like other stocks but they are traded in the over-the-counter (OTC) market. For the trading of most stock an agent will act on the investors behalf and arrange a transaction directly between the investor and a third party. The broker then receives a commission for facilitating the trade.

A large proportion of all penny transactions are charged by brokers as principle transactions. This means that the broker is not paid any commission but rather makes its money on the spread, and by buying and selling at advantageous times. There is no single price at which penny stocks are bought and sold, but rather there are a number of different prices. The difference between the bid and ask price is known as the spread. The spread of many penny stocks are usually around 25-33% but can often be 50-100% or even more. There are also always two bid and two ask prices, these are known as the inside and outside bid and ask. Keep in mind that it is the outside bid and ask that is of most interest generally. Penny stocks are also subject to mark up pricing. This is where a broker has held the penny stock in its account and has therefore taken some of the risk associated with market price fluctuation.

Although penny stocks are quite complicated and there are many problems associated with trading penny stocks as well as millions of dollars of loss, many companies still trade in them because they can help for example, struggling companies just starting up. The best way of finding a good investment is by consulting with your broker. However in the penny stock market be very wary of brokers who are only trying to sell and may not have your best interests in mind.

We’ve all heard about the investor how bragged about his 100% or 1000% return on a stock or about the guy who made it rich by investing in small caps, undiscovered stocks that made it big. In theory, it seems to be too easy. Invest in a couple of penny stocks, then sell them when they move up. Unfortunately, it is too easy. Too easy to lose money unless you know what to look for.

First, lets have a look at what types of companies trade on the OTC BB or Pink Sheets.

Stocks that no longer trade over $1 on the Nasdaq

These include companies that fell from grace (Enron). While it is possible that they may see better days in the future, the odds are stacked against them. Its usually best to avoid trading these stocks. If you feel that the temptation is too much, wait until the stock begins to rebound. If you try catching a falling knife, you will get hurt.

New Start Ups

Every year there are hundreds if not thousands of companies who decided to go public. Whether they need the money to expand their business, or are looking to cash out their equity, its a natural progression for a company with a compelling story, and a great track record to go public. While many of these companies will file for an IPO, many others will start off trading on the OTC BB as a penny stock

Second, lets look at some tips to help the penny stock trader avoid making costly mistakes.

Due Diligence

Stocks listed on the Pink Sheets don’t have to file annual or quarterly statements. This makes starting your due diligence difficult. Often, the information is sketchy at best, and typically, its biased. You should expect a shareholder to say good things about the company. If the company didn’t have potential, they wouldn’t be holding it. Or, they might be hoping to unload their shares and hope to talk you into buying.

Stocks listed on the OTC BB file annual and quarterly statements. This provides some measure of financial success. You’ll find most penny stocks lose money, whether through managerial incompetence, or research and development. The key is to identify the companies whose management has a record of consistently making money, or at the very least, delivering on their business plan, and decreasing expenses.

Penny Stock Newsletters

Being a writer for The Leading Source (http://www.1source4stocks.com) puts me in a biased position when speaking to penny stock newsletters. Here’s what I can tell you: be careful! Check the disclaimer for the amount the newsletter is being paid to carry the profile. Are they being paid in cash or in shares? You’ll likely find a corelation between the number of shares they are being paid, and the rating on the hype meter. Does that mean that you should avoid any stock where the company is paying IR professionals in shares? No. Just keep in mind that they are selling a story, and if they sell the story to other shareholders, they will gain. This is not a problem if you get in early, but could be a problem if you aren’t able to jump in right away.

Take a look at the track record of the newsletter. Have they profiled winners? Do they state the facts, or state the hype? Do they also offer unpaid stock profiles? If they do, you’ll likely find that they do their own research in all companies, and are looking to ensure that they aren’t passing a weak stock your way just to pay the bills.

If a company is paying an IR professional money to profile a stock to its subscribers, should you avoid it? Of course not. Think of the payment as advertising. They are promoting the company, and trying to get exposure. Like any company, the only way to get exposure is through some method of advertising. So dont dismiss a paid profile as hype. Keep it in the back of your mind while you are reading the profile, but pay attention to the profile. You may find a diamond in the rough that no one has discovered.

Volume

If you want to make money, you have to be able to buy and sell enough shares to lock in your profit, or protect your capital. If ABC company’s daily volume is only 500 shares a day, it may take you several days to accumulate a position worth taking. If there is bad news, who is going to buy your shares? If the volume is low, stay away. Its not worth it. If you feel that strongly about owning the company, consider contacting the company directly and working out a deal.

Buy Results, Not the Story

If you buy the hype, odds are, you will end up being the last one to own the shares, while everyone else has sold off their position. Look at a company, take a look at what their business plan was, and confirm if they have followed through on that plan. Were they successful? Did they bring a product to market on time? Did the company follow through on its acquisition strategy in the manner they set out? The hype might get you a quick pop, however, unless you are watching your trading screen every second of the trading day, you will miss out.

Size matters

There are thousands upon thousands of penny stocks. The size of your position should not be anymore than $2000 - $3000. While this may not seem like much, keep in mind that its not unusual for a $0.10 company to drop to $0.05. That’s a 50% loss. If your position is $10 000, a 50% haircut leaves you with only $5000. Keep your losses to a minimum. If the company has done well, and you are up, either take your profits off the table, or add to your position, and be sure to reset your stop loss so as to protect your previous profits. Capital preservation is the key to successful trading.

Have a plan before you buy. What are your reasons for buying. What is your exit strategy? Where is your stop loss? At what point will you take your profit? Write down these answers before you place that buy order.

Penny stock investing can be profitable. Remember, you are taking larger risks than you would if you were purchasing shares in a bank stock. That risk can be rewarded with returns that you cant get with a bank stock, or, it will be met with a large loss and a bad taste in your mouth for investing in penny stocks.

Do your homework, don’t believe the hype, and protect your capital.

Note: The Leading Source provides its subscribers with both paid and unpaid profiles. Follow those tips and you will watch your pennies grow into dollars.

Buying penny stocks is a fabulous investment for the main reason that they can quickly make a dramatic price gain. Most every day, there will be a hot penny stock that rose over 100% in just that one day. So while others are investing in blue chip stocks, hoping to earn something like 15% per year, penny stock investors hope to find several that make double or even triple digit gains in a week or month.

But it is not easy to find these big gainers or else everyone would be doing it. Because there is more risk in buying penny stocks than larger issues, many investors steer clear of them. But if you are willing to take that extra risk and not put in more money than you can afford, they may be for you.

The challenge is finding these big gainers when they are cheap. It is hard to use traditional analysis on penny stocks. Due to their small size and market capitalization, many times there is not an analyst who reports on them. And for the individual, it takes a lot of time to sort through all the information to find the one with the potential to gain 100% or more. But there is a way to find these hot penny stocks without all that research.

The secret to buying penny stocks that will gain 100% or more is to follow stock promotions.

A stock promotion is basically a marketing campaign where the product is the stock itself. The goal is to advertise the benefits of buying the stock and increase the demand. With increased demand comes a higher stock price - and your potential profits!

It has been proven through research that 7 out of 10 stocks that gain 100% or more are due to stock promotions.

So now the task of identifying big gainers when they are cheap just got a little easier.

Historically, knowledge of stock promotions was held by professionals in the business. Now though, one of the more successful stock promoters is making his hot penny stocks available to the public through his newsletter. The Wall Street Journal wrote about Jason Fuller, “Unlike other penny stock ‘experts’, Jason has managed to turn these investment vehicles into a tool for riches.”

Jason Fuller is not only a successful stock promoter, but the results from his stock picks have been impressive as well. Over the past 10 years, he is averaging 127% gains. On his website, he publishes a list of his 2008 picks and their results, so you can judge his performance for yourself. Jason has recently opened up his newsletter and his weekly picks to the public. I subscribe to it and recommend anyone else wanting to make big gains take a look at it for themselves.

Let’s say you are looking to make some short-term easy gains in the stock market. Who isn’t? Significant gains happen on a daily basis. The question is how can you find the stocks about to make theses gains without being an insider or receiving a hot tip from your Uncle?

Here is a list of some easy factors I have found which often indicate where the profit can be and you won’t have to rely on your Uncle.

Let me further define exactly what we are looking for: An undervalued stock that has the ability to make significant (>5%) gains in the near future.

Factor #1
Recently Depressed: I don’t mean as in a mental state. Has the stock had a down turn in say the past month? Do not let a sudden plunge detract you from the stock, these are often caused by a misinterpretation of the stocks data and may be an indicator that a correction is upcoming.

Factor #2
Previous days open to close (you can look at a chart): Has the stock started to come back. We are not looking for a large improvement, simply a sign that the slump is over.

Factor #3
Analysts Opinions: I have found it bodes very well for a stock if 1 or more analysts have rated it in the Moderate to Strong Buy range. Opinions, weather you agree with them or not, influence the market and as such make themselves a valid indicator.

Factor #5
No news: No news is good news. If nothing has happened to the stock in the recent past and the market has had time to digest whatever reason (if there is one) the stock is currently deflated the time for a change is often near.

Factor #6:
Increased Volume: Like a recent rise in price a recent increase in the volume of trading shows that the stock is starting to draw some people’s interest

Other factors:

- Ratings (MSN, Charles Schwab, etc. all have their own rating systems) - although these can indicate they often include factors better suited for longer term, stay the course, type gains. My suggestion when reviewing any of these ratings is to not give them much weight when contemplating the short term

- Earnings Reports - is one upcoming or just passed? If so you may want to count this as recent news and disregard the stock. However, you may want to do a little more research. A decent earnings report for a deflated stock can often bring some of your biggest gains.

- Your own - I often find that each investor has his or her own special tidbit of data that they have found helpful. Feel free to add yours here.

Do all these factors often occur together - Not for any one stock, but if you look at a large number of stocks you can usually find one or two on a daily basis. I have found several methods which are a great help in identifying stocks displaying this type of behavior such as comparing stocks to their indexes, watching for volatility, detecting movement, etc. What is most important is that when they do occur - and you find them (baring catastrophic disaster or a monumental over-site) - you have an almost certain candidate for a decent short-term gain.