Oct 12, 2011

Posted by in Penny Stock | 0 Comments

How To Find The Best Penny Stocks

Do not let anyone fool you-using value investing criteria is how to find the best penny stocks

Best Penny StocksFinding the best penny stocks is a bit challenging today, as everyone seems to have their own criteria of what works and what does not. If you ask 10 different “experts” on what they look for in a good stock, you are likely to get 10 different answers. But finding the right stocks is critically important, probably more so in this field than any other.

With stocks selling for a higher price, you can often afford a few misses, because small swings in price do not affect your overall investment much. However, if you put money in a company selling for $.15 and it goes down to $.1, there goes 33% of your investment!

First of all, the price to earnings ratio (P/E) is a great way to find the best penny stocks. This is because it is a good indicator of whether or not it is a good time to buy the company (it does not show whether the company itself is worth buying-and important distinction that will be discussed momentarily).  This basically reveals the amount the investor will pay for each share of the money the company makes. The way to determine it is to divide the stock cost by how much the firm is making per share. The best penny stocks will have a highest P/Es.

This is because the stock will be undervalued (selling for less than its’ worth). Short term, that might not mean much. This is because the market is volatile and stock prices do not always reflect how well the company is performing in the short term. However, in the long run they always match up. If you want to find a good company to invest in that will make you money for years to come, then the P/E is a good litmus test.

However, do not stop there. Also, look at how good the company’s long term prospects are. The reality is that most companies selling for $1 or less are not going to have a profitable history you can go on.

To find the best penny stocks, you’re going to have to research.

Instead, you are going to have to dig a bit deeper. Look at how good their products are compared with competitors. It helps to know something about the industry so you can tell this. Also, take note of who is managing the firm. If it is someone that has proven they can manage successful companies in that niche or other niches, it is a company worth looking into (even if past results are not great).

The bottom line is that the same strategies that apply to value investing also apply to finding the top penny stocks. Sure, you can just look at the price trends of the stock price and ignore the business if you want to become a day trader. However, if you want to build a long term business around penny stocks, this is the way to find the best penny stocks.

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