Why Buy Penny Stocks?

Penny stocks are cheap but are they good investments? Why buy penny stocks? For that matter what is a penny stock? According to Investopedia:

A penny stock typically trades at a relatively low price and has a small market capitalization, usually outside of the major market exchanges. These stocks are generally considered highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. They often trade over the counter through the OTCBB and pink sheets.

So, why buy penny stocks? Most penny stocks deserve their low price but there are diamonds in the rough. Trendshare poses the question, should you buy penny stocks?

You must do your research to find any good stock. Plenty of stocks are undervalued, but to prove that you must understand their business. Why is the stock price so low? Is the company struggling? What are the chances it will succeed? Most of these businesses are risky gambles, and they’re obvious even after a few minutes of looking. That’s why penny stocks are bad. Your research time could pay for itself.

Because so many penny stocks are bad investments and even subject to pump and dump price manipulation most investors avoid this entire market niche. That having been said there are good penny stocks that will make a lot money if you find them. How does that work? You can do all of the research yourself or you can use the advice of market analysts.

Penny Stock Suggestions

Money Morning routinely offers penny stock suggestions. Here are their 5 top penny stocks from a recent article.

Today we’re bringing you our updated list of the top five penny stocks this week. All of the penny stocks in this week’s list delivered market-busting gains last week, with the top-performing stock rising over 170%. Money Morning updates our top five penny stocks list every week for readers. We only add stocks from the most reputable exchanges, like the NYSEMKT or Nadsaq, to our list. That’s because these exchanges require more rigorous financial standards than Over-the-Counter (OTC) markets.

It is important to note that they do not pick penny stocks from OTC markets but rather stocks that are held to higher financial reporting standards, which makes analysis more accurate. These are their most recent picks.

Lucas Energy, LEI
International Shipholding, ISHC
Ekso Bionics Holdings Inc., EKSO
Novavax Inc., NVAX
Neonode Inc., NEON

Lucas Energy is a depressed energy stock while International Shipholding is a maritime shipper and a turnaround play. Both of these stocks get better if the economy improves.

Ekso is a fast growing company that makes exoskeleton devices or wearable robots. It this stock succeeds it will be phenomenal. But remember what Warren Buffet says about picking stocks in fast growing sectors. You can predict that the sector will grow but it is hard to predict the individual winners.

Novavax is a biotech company that makes vaccines with a proprietary synthetic gene method. Like other biotech companies this one could soar to huge profits as the biotech sector grows but picking individual winners is tough.

Neonode  develops optical sensing technology that turns surfaces like tabletops into touch screen surfaces for smart devices. The same promises and same cautions apply to this stock as to other high techs.

With all the trouble picking winners why buy penny stocks? Adding a reasonable number of well-chosen penny stocks to your portfolio offers the possibility of an investing home run or two with hundred fold or even thousand fold gains.

Why Buy Penny Stocks? PPT

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