Tips to find best penny stocks

By: Jeff Mirkin


penny stocksEvery Penny counts. The very fact that there are tens of thousands of folks trading in penny stocks right here in the U.S. itself is proof that Penny Stock Alerts is a highly profitable endeavour. As consultants and traders ourselves, we’ve been time and again asked for tips to finding the best penny stocks. Read on.

With an extraordinarily large number of penny stocks to choose from as well as a seemingly endless supply of best penny stocks newsletter, one might be forgiven for assuming that finding the best penny stocks would not only be easy but also highly profitable. The reality though, is alarmingly different. This is because 90% of penny stocks available and constantly pushed for sale tend to be duds.

How can Penny Stocks be Duds?

To start with, penny stocks originate primarily from two sources; new businesses and re-launched businesses. In first case, the business is not yet proved to be profitable. In the second case, the business probably went bankrupt and with the help of courts (to protect it from creditors), has been re-launched. You don’t yet know if the management has learnt any lessons or the new management or revised business structure will help it become profitable. This is tantamount to saying all Cheap penny Stocks are duds. Almost true – you have to learn to recognize the real diamonds from the duds.

In both the above instances (new and re-launched businesses), the companies themselves will try and push the stock. Every increase in the stock value makes the company seem more profitable and in turn enables it to borrow funds and keep existing creditors happy. This makes finding the Great penny stock picks a tad difficult.

Why Invest in Penny stocks at all?

If after days of search you manage to find even one diamond, it will make you a neat pile. If a $0.02 penny stock becomes say $0.05 it represents a 150% increase on your investment. This is what makes penny stocks so profitable.

Selecting the best penny stocks

Avoid looking at the dollar value of your investment. Too many first timers think they are investing a small sum (maybe $20) and therefore it is okay to lose it. No so. Over time, your daily losses will mount to several hundreds and then several thousands of dollars.

Once you come across a likely penny stock, investigate it. Playing investigator works for me. I assume I am a hot-shot fraud investigator and check out the stock inside out. All information put out in the public domain needs to be verified. You verify it by obtaining information from non-public domain source. Again, lack of information does not mean the Penny Stock tips is a dud. Remember that these companies are all short on funds and do not spend money on high-tech websites, brochures and the like. They usually do not even have a professional PR team. In fact, very often the CEO also doubles as PR representative for the company.

Verify the math.

At one level, finding the penny stock picks is relatively easy – you calculate the P/E (Price earning ratio). The P/E should be low as should the overall amount of accumulated debt.

Invest in the best penny stocks you find only after understanding its business thoroughly well. If the business model sounds complicated, you had best keep away from it – too many things could go wrong here.

The Pink sheets stock Forum

Although online forums are a good source of penny stock information, don’t allow yourself to be pushed into buying anything.

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Jeff Mirkin has been trading penny stocks for 12 years and is an expert in microcap securities.

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