Topic: Penny Stocks

Penny Stocks to Buy Now: Here’s what you need to look for to cut your risk

When you look for penny stocks to buy now, look for strong business prospects, a sound balance sheet, experienced management and more. Otherwise you are likely taking on too much risk

Many investors are attracted to penny stocks because they are cheap. It doesn’t take a large investment to buy a significant number of shares—for example, $1,000 can buy 10,000 shares of a stock that’s trading at $0.10 cents. If you have a large position in a $0.10 cent stock, a share price rise of only $0.05 cents can make for a substantial 50% gain.

However, there’s a good chance the stock will decline. Being speculative ventures, the vast majority of penny stocks fail, putting your entire investment at risk if you hang onto them too long.

If you are a highly aggressive investor, or you want to add to the highly aggressive portion of your diversified portfolio, then finding penny stocks to buy only makes sense if you find ways to cut your risk.


The appeal of risk

”Penny stocks have appeal for some aggressive investors who aim to get into fast-growing stocks at what they describe as ‘the ground floor.’ They think the best way to profit in stocks is to buy them when they are just barely starting out on a growth phase that can last for years if not decades…” Get your free complete guide to investing in Canadian penny stocks.

 

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Penny stocks to buy now: Here’s what to look for  

Here are the main factors to look at when seeking penny stock success:

  • We look for well-financed penny stocks with no immediate need to sell shares at low prices, since that would dilute the interests of existing investors.
  • We like to see a strong balance sheet with low debt. Even better, we like to see a major partner who can finance the mine, software and so on to production.
  • While you’re looking at the balance sheet you might also want to see if there are any hidden assets, like research and development for example.
  • We want to see experienced management with proven ability to develop and finance a new business.
  • We insist on political stability. For example, mineral exploration is risky enough without the threat of expropriation or onerous taxes.
  • We avoid stocks trading over-the-counter where regulatory reporting and so on is lax.
  • We avoid stocks trading at unsustainably high prices due to broker hype or investor mania.
  • For junior mines, we compare the market cap of the stock with the estimated value of its mineral reserves, future product sales and so on. Some pennies need to find a mine, or successfully market a lot of their software or other products, to justify the current share price and avoid collapse.
  • Again for mines, we like stocks that have a broad base of operations. Even if the company has strong reserves, the best mining stocks with the least risk also have a diversified reserve base. That way they are not dependent on a single mine’s production or political stability in any one country. Mining companies can also increase their reserves by making acquisitions—with mineral prices down from their record highs, you may see an increase in mining company acquisitions at distressed prices.
  • The best penny stocks have an identifiable partner. These companies have a major partner who has agreed to pay for development and so on in exchange for an interest in the property.
  • Rule out investing in companies that are highly aggressive or misleading when promoting. Focus on companies that are developing or launching their saleable product or service instead of selling stock or telling their story. They are more likely to be successful.
  • Keep penny stocks to a small portion of your portfolio and look at the bigger picture in each industry. It’s important to take a look at industry-specific considerations that most often appear in technology, mining and software development because that’s where penny stocks are often found.

Many investors are considering marijuana penny stocks, but are these the right penny stocks to buy now?

Now that they’ve proven popular with investors, more people looking to add to the aggressive portion of their portfolios may turn to the higher-risk strategy of finding marijuana stocks to buy. But penny marijuana stocks—with just a plan and no real assets—are an even riskier bet.

Ultimately, marijuana penny stocks should only be bought with money you can afford to lose.

What industry are you currently most interested in for penny stocks?

Have you given in to the temptation to buy a hot new penny stock? What happened with that investment?

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