This article discusses
hot penny stocks picks. What penny
stocks are: Stocks that go public at between 10 cents and $1 a share,
giving investors a chance to invest in start-up, entrepreneurial
companies. Since the entry price for these investments is so low, some
of them rack up astonishing returns.
See
penny stocks
for more information.
A factor that favors penny stocks right now:
With its simplified registration form, the Securities and Exchange
Commission has made it much easier and less costly for a young company
to go public.
Rules for investing in any venture-stock situation:
Don't use limit orders. penny stocks are just too volatile. Investors
typically lose money by trying to get the stock at 2 cents less a share
or by selling it for 5 cents more. When you think it's time to sell or
buy, do it at the market.
Use only 10% to 20% of your investment assets. (Don't speculate with
funds needed to maintain liquidity.)
Understand that most gains will be short-term.
Sell half of a position if the stock doubles.
And then sell the other half if it doubles again. Don't try for a
long-term gain.
Don't buy in a strong market or sell in a weak one. penny stocks are
illiquid. You must consistently sell into strength and buy on weakness.
Deal with a quality firm and a knowledgeable stockbroker. There's little
public information available on these issues. You must rely heavily on
your broker.
What to look for in a penny stock:
People, people, and people. You want entrepreneurs who know how to
survive and have a big stake in making the company succeed. Also
important: Friends and relatives of the management should have money
invested in the company. That puts even more pressure on the owners. As
a general rule, owners should have many hard reasons that prevent them
from simply walking away from the company.
Management's track record. Do they have the experience necessary to
succeed?
The investment banker doing the underwriting. How have the firm's last
five deals done? Last ten? Does the firm have regulatory or back-office
problems?
What the funds from the public offering will be used for. Money should
be used for basic needs of the company, not for overhead or salaries.
To
Hot Penny Stocks Picks - Top
High technology is the last frontier in American
business. Although these stocks have declined sharply during bear
markets, they have outperformed other stocks, rebounding more sharply in
subsequent recoveries.
Smaller companies developing new technologies or making a breakthrough
on an old one, have three things going for them. These are the
advantages:
Since they are small, the impact on their earnings from the new product
or system can be significant.
They are generally free from government regulation because their
earnings are often in a new field (except in the case of medicine, where
the Food and Drug Administration reigns supreme).
If the company scores a significant breakthrough, it
has a chance to dominate a growing market. That's an extremely
profitable position even if the market served is relatively small.
Rules for the budding high-technology investor:
Invest in a technology company only if you perceive it as serving a
current social need. Some technologies are ahead of their time and are
initially rejected. Example: When cable TV was introduced in the 1960s,
it attracted hordes of investors but few subscribers. Today, there is a
definite subscriber demand and cable TV is a far more attractive
investment.
The high-technology expertise of the proposed company
must be a meaningful part of the firm's business. For instance, the
largest contractor in electronic warfare is General Telephone and
Electronics Corp. However, that technology accounts for a mere 1 % of
its earnings. But the number four in the field, Sanders Associates, gets
most of its income from its electronic warfare technology. Point:
Large firms don't always have the edge on high technology or research.
No matter how attractive a scientific breakthrough may seem, don't buy a
company operating at a deficit. Business graveyards are loaded with
firms that couldn't deliver because of their poor financial situation.
Following this rule may force you to pay a little more for your stock,
but it will eliminate a good deal of the risk.
Ignore the market indexes: Companies with technological superiority are
not tied to a stock market environment over time.
Keep current on technological innovation.
Read scientific papers, magazines and investment guides that deal with
technology.
Source: Consumer Information Center
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