A Few Helpful Tips For Finding Profitable Penny Stocks

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Successful penny stock strategies often focus on technical analysis as a way to buy profitable penny stocks with maximum returns.  However, I believe the fundamentals of a company are equally important in order to help minimize risk and increase the odds of scoring a high yielding penny stock.

Stereotypically speaking, penny stocks are companies just starting up and in need of capital. They are indeed very risky in nature but if the chosen company is successful, they can provide a huge return on investment.  But how do you identify a good company with great potential?  Here are some factors to consider:

Innovative Ideas and Competent Management
Finding companies that will take off is not an exact science. It requires significant research and a little bit of luck. However if you know what to look for, you can dramatically increase your chances of picking the right stocks.

A successful company needs something that sets it apart; a way of delivering a known product more effectively, a new product, or even a whole new concept. It is up to you to scout out the companies and judge for yourself if their ideas hold water.

Secondly, a company starting up needs competent management. A company with a great idea can easily fail if thoroughly mismanaged. Judging whether the people behind a company are talented can be extremely difficult but look at what experience they have, if they seem trustworthy, and whether they are passionate about what they are doing.  Also, see whether they actually hold stock (insider buying).  If they hold stocks, chances are they truly believe in the company and its future.

Healthy Balance Sheet
Probably the most important factor to consider when making profitable penny stock picks is does the company have a healthy balance sheet?  Do they have significant debt and are they turning a profit?  What is their cash burn and how much cash do they have on-hand?   These are the types of questions you need to answer before even considering to buy penny stocks of a particular company.

Diversify Your Portfolio
No matter how well you pick your penny stocks, you will still be making very risky investments. To reduce the risk you need to diversify. Ideally, you want to invest in other, more secure assets, such as bonds, ETFs, or stocks of established companies like blue chip stocks.  If you only invest in penny stocks (not advisable), you especially need to pick multiple companies. Remember, you want to buy profitable penny stocks, as in more than one; never put all your eggs in one basket.

It shouldn’t come as a surprise that penny stock investing is not for the faint of heart.   However, implementing some of the core concepts discussed will increase your chances of a profitable outcome.

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