Penny Stocks

Posts Tagged ‘penny stock picks’

Stocks are generally categorized according to their market capitalization and price value by the market players. Accordingly, we hear terms like large cap stocks, medium cap stocks and small cap stocks. Shares with very small market cap (up to $100 million) and a maximum price value of up to $ 3 are called penny stocks in the market jargon. These are usually cited as the opposite of blue chip shares, which often carry a premium tag. Penny stocks are usually traded over the counter (OTC) by the brokers because they are unable to list on exchanges due to their stringent norms.

For one thing, big exchanges like the New York Stock Exchange (NYSE) and NASDAQ prefer top-of-the – line companies for listing. More so because they too are keen to feed on reputation of the companies they trade in just as the latter want to cash in on huge turnover volumes of these exchanges. Second, they also strictly enforce compliance of their norms by the listed companies, meaning that those who fail to do so are automatically de-listed. Such exchanges tend to evaluate performance record and caliber of top management of the company applying to list with them.

In contrast, penny stocks are mainly unlisted and traded outside exchanges. In other words, they are nondescript stocks with listless trading. Penny stocks mostly change hands between brokers, without getting much notice from common investors. This is because this category of stocks is supposed to be risky due to lack of key information on the concerned companies, their promoters and management. Perhaps this is the reason why these stocks are so often targeted by investment scammers.

Nevertheless, penny stocks can also turn in unexpectedly big returns if they rise on the fundamentals of the concerned company rather than any market manipulation. This is because most of the penny stocks are generally quite undervalued due to lack of market support. So, anyone who can lay his hands on the right penny stocks might reap unexpected gains some day.

Penny stocks may be quite undervalued sometimes, meaning that they could be good picks for those investors looking for an attractive bang for the buck. However, making a smart investment move in penny stocks, as in case of other such instruments, requires adequate background information on their market history, related companies’ financial performance and quality of the top management. Besides, information is also required on the companies’ future investment and business plan. Such information can be easily collated on those penny stocks listed in small caps on the AMEX and the NASDAQ.

However, those traded only on the pink sheets and the over-the-counter bulleting board (OTCBB) are difficult to track because available details are usually sketchy. Moreover, OTCBBs are not required by law to provide key details relating to their operation and performance. Still, investors can find key details through alternate sources like newsletters published by penny stock brokers, penny stock network and the various websites monitoring trading of penny stocks. Many websites run by penny stock brokers also carry a sizable listing of recommended picks on a daily basis.

Key details on penny stocks for investment purposes can also be purchased from the various brokers involved with their trading on a regular basis. These brokers can also guide you through the intricacies of the penny stock trading on a one-to-one basis. Alternatively, you can do your own research by utilizing the large body of information being published on the web on a daily basis, without depending too much on the brokers. By adopting this approach, you can easily gain key insights on penny stock trading. Once you have put in place your own data base, you will have to just keep your eyes and ears open to know what is really happening in penny stock markets. Accordingly, you can fine-tune your trading strategy.