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Penny Stocks and Micro Cap Stocks: The Right Stock at the Right Price
In past articles I have touched upon how to play a penny stock or micro cap stock near its bottom. You will come across a lot of stocks at or near their bottoms when trading penny stocks, here are some tips for timing your purchase correctly.
Once you have found a stock you like, take a look at its 52-week high and its 52-week low. This will give you the stockís trading range for the year. When a stock is trading near its 52-week low it has a better chance of moving upward in the trading range.
When at a 52-week high, some traders may feel its to risky to purchase and will wait until there is a retrace in price. This is a general rule for the majority of penny stocks that trade within a range. There are some obvious exceptions, such as great news causing a penny stock to continually make new 52-week highs.
When a stock you like is near or at its 52-week low, you must investigate why. Search for any S-8ís, SB-2ís, or an increase in the amount of operating shares. These SEC filings are dilution, the company will have added shares to the market causing an increase in supply and a price drop. If these filings are not present and there is no reason for the stock to have dropped this low, then it may be a good time to invest.
You should have a good reason why you like the stock before purchasing. Some major things to keep an eye on are stocks in very strong markets. Currently gold and oil stocks are strong, therefore finding undervalued gold and oil penny stocks is a good idea. Another of my favorites is finding a penny stock with an innovative product, these types of products can garner national media attention and often will draw the interest of other big companies in that field.
Ideally, you want to find a company that has increasing revenues and a lot of valuable assets. These types of companies are hard to find and you must investigate thoroughly. Often you must assume they will generate revenues in the future. Look at the amount of shares the insiders are holding: is there a small float with a large amount of insider ownership? This would be a sign that the insiders think that their shares will be very valuable in the future. At times you will also find that institutions are holding a percentage of shares, which would also be a good sign.
Using a stock screener you will be able to generate lists of stocks with institutional holders, insider buying, small floats, and strong revenues. After you generate these lists, separate them by their fields, such as technology, oil, or gold. Find the companies that interest you most in the strongest of fields and begin to read the filings. You will be able to dismiss some companies almost immediately. Keep narrowing down your search until you have a handful of companies into which you are willing to invest your hard earned money.
If you have done your research correctly, the company should continue to grow in value and in time other investors will realize the potential and the price of the stock will continue to rise.
About the author: Keith Guyette M.Ed, J.D. is a professional trader and the owner of a stock talk board thepennystockblog.com.