Are you hunting high and low for Which are the best penny stocks to buy right now listed on the NYSE and Nasdaq to become a millionaire just like Timothy Sykes?
Since there are thousands of stocks out there to pick from, it is a tuff call to pick the best one. Traders make money by investing in penny stocks applying their own trading strategy that is developed by their blood, sweat, and tears. But here is the good news for you that you can pick the best penny stocks by developing several strategies of your own to become a successful penny stock trader. Developing a trading strategy requires a lot of research. You have got internet at your fingertips, so it is easier to find information on any penny stock before investing.
What is a Penny Stock?
A penny stock refers to the share of a company that trades for less than $5 a share in the stock exchanges namely Nasdaq, New York Stock Exchange[NYSE]. Erstwhile a penny stock would refer to those stocks that traded below $1 per share. But later the United States Securities and Exchange Commission altered the definition of penny stock. Now if a share of a company trades below $5, it is a penny stock.
3 Pros of investing in penny stocks
Investing in penny stocks is quite rewarding if you have got the right penny stock. Here are 3 pros of investing in Penny stocks.
Whooping Return on Investment – Due to the low market capitalization and lack of information on key matrices namely revenue source, profitability, valuation, management, the institutional investors are not interested to invest in these risky stocks. If you are able to buy a quality penny stock then a penny stock can make turn a meager capital of $1000 into a whopping $1 million within a decade.
You can Invest with as low as $5 – When you want to buy bluechip stocks namely Amazon, you should have $3000+ in your brokerage account. But you can buy a penny stock even if you have $5 in your trading account. Long story short, you don’t need to have $3000 in your trading account to buy penny stocks.
Superior Returns – When your stock portfolio gives an average return of 12% a year, you will earn 12% in a trading session once you understand the patterns of the trading chart.
7 Cons when you invest in Penny Stock
The startup companies offer Initial Public Offering via the stock exchanges to raise capital in order to grow the business. Though you can hit a jackpot when you buy the right Penny stocks and stay invested, you can go bankrupt by investing in penny stocks. Penny stocks are associated with the following inherent risk,
Penny Stocks can be delisted from Stock Exchanges
The stock exchanges have some stringent laws and regulations. Penny stocks can be delisted from the major stock exchanges namely Nasdaq, NYSE, etc. for non-compliance of rules and regulations of the stock exchanges.
An inherent risk of Loss of Invested Capital
Penny stocks are small companies. There is a great possibility that these companies can go bankrupt within a year. When the companies go bankrupt all the assets are sold out to repay the creditors and the share of the company becomes worthless. As a result all of your investment will turn to zero dollars.
There are various instances where the insiders buy the penny stocks of the shell companies in large quantities and manipulate the price heavily. They make use of the ‘Pump and Dump’ strategy. It is easier to manipulate the stock prices significantly by buying the penny stocks in bulk. When the prices are relatively higher owing to the increase in demand, the insiders or promoters of the company sell their stake to the retail investors. As a retail investor, you will lose your invested capital significantly.
Investing in Penny stocks is most suitable for those kinds of investors who have a high-risk appetite. Penny stocks have a higher level of volatility resulting in a spike of 20% in a trading session or 100% within 5 trading sessions, and on the flip side, penny stocks dive 500% within a year. There are various instances where the company exhaust its funds and becomes bankrupt and then momentarily leads to exit from the business.
Penny Stocks lack Liquidity
Penny stocks trade infrequently in the stock exchanges. Apart from that, they are small companies. So, they fall short in respect of liquidity that means a retail investor might face difficulty to sell stocks since buyers are not available most of the time. That means if the price of the penny stock surges 500% within a year you will hardly find any buyer since there are only a few buyers. Most likely you won’t be able to sell a penny stock once you have acquired penny stock.
Penny Stocks are not trustworthy
Penny stocks are not trustworthy. There are a few of the penny stocks listed on major stock exchanges namely Nasdaq, or NYSE owing to their stringent rules and regulations. Most penny stocks trade via Over the Counter that doesn’t have stringent regulations.
You won’t be able to find detailed information
Penny stocks are the securities of small companies traded on the OTCBB. You will find hardly any data on the revenue model, earnings, management of the company, future expansion plans from various brokerage firms. Additionally, these companies don’t have any track record. Investing in penny stocks is risky, since you aren’t aware of the stock’s potential. You being not an informed investor, investing in penny stocks sounds like you are playing poker in the casinos of Las Vegas.
10 Parameters to pick the Best Penny Stocks
The penny stock universe is full of shell companies. It is a difficult call to pick the best penny stock. Now let’s dive into how to pick winning penny stocks that will multifold your investment capital.
Parameter #1. Find in which exchange the penny stocks are listed
You should avoid buying stocks that are listed on the Over the Counter Bulletin Board and Pink Sheets since the companies aren’t listed on a formal exchange. Instead, you should buy quality penny stocks that are listed on Nasdaq or NYSE. These stock exchanges have imposed stringent rules and regulations to comply with.
Parameter #2. Find undervalued industries with huge upside potential
What makes Warren Buffet a value investor is that he successfully identifies the sectors that are not on the radar of the market with huge untapped potential to deliver returns in the long run. These stocks are available at an insanely low valuation, but after a decade they will multifold investors’ wealth. You should find undiscovered sectors and the players in it and then exercise patience to hold the shares to get fruitful returns.
Parameter #3. Perform detailed research before owning any penny stock
Are you investing in penny stocks solely on the basis of the Market capitalizations of a company?
Don’t do it.
Since market capitalization gives a clear signal of the market worth of any company, it is not the decisive parameter of how the company delivers in respect of profitability, free cash flow, and the most crucial whether it will compete successfully with peer companies.
You should analyze the revenue model, profit margin, sales margin, debt to equity ratio, earnings per share, Book value per share, price to earnings ratio, future expansion plans, peer competition, before investing in penny stocks. You can create a list of industries that you have deep knowledge of. Then list the stocks that are deemed to be fit with the parameters mentioned above.
Parameter #4. Do check the Volatility
Do remember price volatility is a key parameter to watch out for when you want to invest in penny stocks. While picking penny stocks just head over to StocksToTrade and find the biggest gainers and losers too. Volatility ensures that there are buyers and sellers. It means you will easily sell your stake in order to book profit. Contrary to that, if a penny stock’s price doesn’t fluctuate regularly it is a clear indication that there are only a few buyers and sellers.
Parameter #5. Check the Trading volume of the penny stocks
If you buy a stock and after one year the stock trades 200% above from the buying price and it doesn’t have a solid volume then to whom you will sell your share and book profit. That’s why check the trade volume of the penny stocks before investing. No matter, whether the earnings reports are strong. Don’t trade penny stocks that fall short of 2, 00,000 shares traded a day. When you own a stock that has a high trading volume, you can sell instantly without struggling as there are a lot of buyers.
Parameter #6. Check the Liquidity Ratios
The Liquidity Ratio is the ability to pay off the current debt without pumping external capital. Suppose a company has $1000 in debt and $1 million in assets. Even though the company has debt, it can repay the debt easily and has enough capital left to run the daily operations.
Parameter #7. Check the Solvency Ratios
The solvency ratio reveals whether a company’s cash flow is sufficient to pay off the long term debts or liabilities. Though the Liquidity ratio and solvency ratio gauge the financial health of the company, the Solvency Ratio reveals the creditworthiness of a company in the long run.
Parameter #8. Gauge the market sentiment
Penny stocks are not fundamentally strong companies. Any minor changes in government policies, the advent of new technology, war, election, can strongly impact its share prices. Hence you should understand the underlying risks associated while buying penny stocks. Additionally, penny stocks are prone to price fluctuations heavily for minor events, you should have a strong understanding of the stock market.
Parameter #9. Pay close attention to price fluctuations
Be it a new product launch, or merger, or management, pay close attention to these catalysts. These events can eventually skyrocket the share price of any company. Additionally, you should check what news about the company fills the air, but never blindly follow the news in case you are buying a penny stock.
Parameter #10. Identify the Pattern
Even though history repeats itself, but not in all cases. History can help you to take more informed decisions when you want to invest in penny stocks. When you pay close attention to various charts you will find some pattern. I admit they are boring, but the reliable one to make money by investing in penny stocks. Once you have successfully identified the patterns then you can turn $10k into a whopping $6 million like Timothy Sykes.
Where will you find quality Penny Stocks?
You’re probably familiar with the major stock exchanges namely the New York Stock Exchange(NYSE) and National Association of Securities Dealers Automated Quotation System (Nasdaq) and The American Stock Exchange (AMEX). Apart from the above-mentioned stock exchanges, you will find penny stocks in Grey Sheets, OTC Bulletin Boards.
The penny stocks trading in Grey Sheets, or Over-The-Counter Bulletin Boards, lack liquidity, it won’t be a good idea to trade penny stocks. The penny stocks listed on Nasdaq or NYSE, have the trading volume of over million of shares, in some instances 5 million to 10 million shares traded per day. In my opinion, you should start investing in penny stocks that are listed on major stock exchanges namely AMEX, NYSE, or Nasdaq.
When you want to trade penny stocks, you should check the stock broker’s fee structure, minimum balance requirement, trading software, user interface. I recommend you should go with Ally Invest since it requires a $0 account minimum and $0 trading commissions on eligible U.S. securities. In case you want to invest in penny stocks that are listed on Over the Counter Bulletin Board and Pink Sheets, then you should open an account with TD Ameritrade. It requires a $0 account minimum and $0 trading commissions.
After a decade of the stock market crash of 2009 most stocks hit all-time high and their price to earnings ratios of most S&P 500 companies are insanely expensive. More than two-thirds of the S&P 500 companies are trading at 25 times of their annual earnings. Though the stock market is quite expensive, here we will offer you a handful list of the best penny stocks to buy for long-term growth.
Which are the best penny stocks to buy right now?
Are you hunting high and low about what penny stocks to buy today? Here is the list of the best penny stocks to buy today.
The first rule of thumb while investing in penny stocks is that don’t invest in “top penny stocks to buy” solely on the basis of research reports of anyone else including mine.
Since penny stocks are highly volatile and it can jump 20% in a trading session and vice versa. At the time you have finished this article penny stocks can make a sharp rise and sharp fall too. Here are the few stocks that I have short out. They are deemed fit for investment, but do remember don’t allocate more than 10% in penny stocks of your stock portfolio.
Silvercorp Metals [SVM]
Silvercorp Metals was incorporated in 1991 and has a market capitalization of $ 1.041 Billion. Silvercorp Metals operate in the Basic Industries sector. Silvercorp Metals’s key Product/Revenue is Income from the exploration of precious metals. If you are hunting high and low for the best penny stocks to buy for long-term growth then you may buy this stock for long-term capital appreciation. The company’s headquarter is located in Vancouver, Canada.
Brainstorm Cell Therapeutics Inc. [BCLI]
Brainstorm Cell Therapeutics was incorporated in 2000 and has a market capitalization of $ 162 Million. Brainstorm Cell Therapeutics operate in the Healthcare sector. Brainstorm Cell Therapeutics’s key Product/Revenue is Income from biological and therapeutic products. The company offers effective treatment facilities for Parkinson’s diseases, sclerosis, and spinal cord injury. The company’s headquarter is located in New York, New Jersey.
Paysign was incorporated in 1995 and has a market capitalization of $ 245 Million. Paysign operate in Miscellaneous sector. The company offers innovative prepaid card solutions for travel-related payments, medical reimbursements, etc. The company’s headquarter is located in Henderson, Nevada.
Zovio Inc. [ZVO]
Zovio was incorporated in 1999 and has a market capitalization of $ 118 Million. Zovio operate in the Consumer Services sector. The company provides online education platforms[including mobile] for students to pursue a Bachelor’s, Master’s, or doctoral degree in Social Science, Psychology, Health Science, Business, etc. The company’s headquarter is located in San Diego, California.
Lantronix, Inc. [LTRX]
Lantronix was incorporated in 1999 and has a market capitalization of $ 125 Million. Lantronix operate in the Technology sector. The company is engaged in engineering services and Sofware as a Services[SaaS] across North America, Europe, Africa, Asia Pacific, and the Middle East. The company’s headquarter is located in Irvine, California.
B.O.S. Better Online Solutions [BOSC]
Better Online Solutions was incorporated in 1990 and have a market capitalization of $ 11 Million. Better Online Solutions operate in the Technology sector. The company offers smart automation services namely Radio Frequency Identification, Software applications for aerospace, defense, telecommunication industries. The company’s headquarter is located in Le Zion, Israel.
Image Sensing Systems, Inc. [ISNS]
Image Sensing Systems was incorporated in 1984 and has a market capitalization of $ 24 Million. Image Sensing Systems operate in the Technology sector. The company works in the development of video and radar processing products. Additionally, the company offers vehicle and traffic detection products to monitor and enhance the efficiency of the infrastructure of highways, bridges, and roadways. The company’s headquarter is located in Saint Paul, Minnesota.
10 Golden Rules of Trading Penny Stocks
Despite the inherent risk of loss of invested capital, retail investors invest money in penny stocks since they are available for $1 or even less. They are lured by the success stories of various stocks that have delivered an exorbitant return of 100% not in years but a few months. If you want to invest in penny stocks, do remember the following points before investing.
Rule #1. Don’t make a portfolio that consists of penny stocks only
Don’t invest big on penny stocks. As a rule of thumb, you can invest 10% in penny stocks of your equity portfolio. If your investment portfolio is $10,000, then you may invest $1000 in the penny stock segment. Do remember, you should invest in penny stocks that you can afford to lose.
Rule #2. Don’t Overdiversify
A rule of thumb in the investing world is to diversify your investment portfolio across various sectors and industries to minimize the risk. But the diversification tactics don’t deem fit while investing in penny stocks. So diversification is futile work when you pick a bunch of low-priced stocks.It is easier to track and monitor the price movements of 3 stocks in comparison to 10 penny stocks.
Rule #3. Track the movement once a week
When a retail investor invests in penny stocks, the primary target is to make a profit of 50% within a month or quarter, not in the long run. If you find that the price of the penny stock has witnessed a sharp rise owing to some news or merger, then you should sell that stock and book profit.
Rule #4. Don’t rely on the reports solely
The internet is full of tips and advice on a penny stock. There always a witch hunt for investors who will pay a higher price of a penny stock. Don’t rely on the company’s claims solely. You should run independent research to pick the penny stocks that will deliver superior returns.
Rule #5. Watch out the trading volume
Most of the penny stocks don’t cope with the required trading volume. Suppose you have 1000 shares of Navios Maritime Holdings, and you want to sell the stocks to book a profit. But the trading volume of the stocks is 700 that are terribly low. It becomes difficult to sell the stock when you want to book a profit. You should buy a penny stock that has a trading volume of at least 1 million.
As a rule of thumb don’t buy more than 1% of the trading volume in a day of any stock. If the trading volume of a penny stock is 1 million then you are free to buy 10,000 shares. This is easier to offload the stock since you are a fraction of the total trading volume.
Rule #6. Don’t make an Equity SIP
Suppose you have bought 100 shares at $3. After a quarter it is trading at $2, don’t pump up dollars to average out by buying more shares. By doing so you can lose your investment capital significantly. You don’t have clue if the share price will move upward or drag further. Instead, you can sell penny stock when it moves upwards instead of buying more at lower prices.
Rule #7. Make a simple Trading Formula
If you have made losses on successive trading sessions how much money are you willing to lose? Instead prepare a trading plan and stick to it.
But how do I prepare a trading plan?
To prepare a trading strategy, follow the following steps.
Step #1. Simply check out the trading volume.
Step #2. Always use a stop-loss that will protect you from losses of what you can afford to lose.
Step #3. Watch out the chart patterns to get a broader view of what happened in the recent past to assume whether the price will move upward following events like election, earnings reports, etc. You should study like mad to hunting high and low at patterns that have happened in the past to assume if the same will happen again.
Finally prepare a trading methodology solely on the facts besides press release, or expert advice on CNBC.
Rule #8. Treat trading success and failures as a lesson
Even the NBA Legend Michael Jordan’s field goal percentage is less than 50%, it’s a common fact that sometimes you will gain and sometimes you will lose. The most important is that you have learned a lesson. Let’s illustrate with the following example.
Timothy Sykes, the best penny stock trader trades MRIN. From the first trade, he had made a profit of $2000+. The next day he made a loss of $300+.
The gist of the story is that you have learned a lesson, not from only success but losses too that don’t go with your favor. No matter how experienced trader you are, you will be surprised that famous penny trader analyst Timothy Sykes makes a profit in about 70% trades. You will become a successful penny stock trader if you are willing to learn from your errors.
Rule #9. Skip the Trades to cut the losses
Don’t carry out the trade when you have made a loss. The number one rule while trading penny stocks is that when a trade has gone wrong, cut losses quickly. Do remember the profit from a trade that is successful was sizeable than a bunch of small losses. You should protect yourself from big losses. By applying this trading rule you will save substantial capital if trades go wrong.
Rule #10. Don’t hold a penny stock for a long term perspective
Are you hunting high and low for penny stocks that will be the next Tesla?
Then you are probably wasting your precious time and money too. Most of the penny stocks will ultimately be wiped out from the stock market. That’s why they are priced below $1 and listed on the OTC markets. If you are in a witch hunt to find a stock that will create an enormous wealth that is sufficient to lead a happy retirement life then the percentage of success is Zero.
Don’t hold stock, in the long run, hoping it will go from $1 to $100. It is not reasonable since hope is not a winning trading strategy rather a losing strategy.
Still have a question what is the best penny stock to buy? or have I missed top penny stocks to buy? Feel free to suggest any other quality penny stocks which I missed in this column.