Penny Stock Investing: Can It Be Done?

Penny stocks are low priced stocks that sell for less than $5 per share. They are considered speculative investments. Many people prefer to trade penny stocks but there are some that prefer to look in the microcap world to find the next great successful company. They get involved in penny stock investing because they are hoping to hit a home run and find the next Microsoft or Walmart. If you are looking to do this type of penny stock investing then read below to find a few pointers.

There are companies that do come out of the world of penny stocks that go onto become powerful and successful companies. All penny stocks are not worthless simply because they are cheap. There have been numerous stocks that started out at a low price. PetSmart would be one such company. All it takes for some biotech penny stocks to surge to incredible heights it to get drug approval. Without that drug approval the stock could continue to languish but with it it can soar. Two such companies that have done this in the last few years have been Human Genome Sciences (HGSI) and Dendreon (DNDN).

So how do you find these types of companies? Well, if it was that easy then anyone and everyone would have done it already. Actually it is nothing more than being the right place at the right time. It is speculating on the future and gambling that a company might make it. Since this type of penny stock investing is highly speculative you should only commit risk capital to this type of investing. You are looking to hold on to penny stocks for long term. This will fail in the majority of cases but every once in a while you might catch a flier.

Normally, I don't believe fundamental analysis has much place in penny stock trading but if you are investing in penny stocks then it is a different story. You will need to pay attention to the fundamental statistics of a company. However, for the most part penny stocks will not have earnings so you will not be able to focus much on that. You can, however, pay attention to whether the revenue of the company is growing. The one thing that you are going to want to give greater attention to is whether or not they may be able to make it in the marketplace. Do they have a unique product that could potentially revolutionize a market? Are there big players who have similar product? If so, then the penny stock is going to have a hard time competing.

You need to look for penny stocks that have a product that is revolutionary or that have some sort of competitive advantage. Your hope is that they can then get it to market before they run out of money. This is always the struggle of microcap companies.

Do your own research on penny stocks? I wouldn't recommend turning to a newsletter that has pumped a stock. If you can find a reputable research firm that has done a report then you can give credence to such a report. Penny stock investing can be difficult, so be patient and make wise choices.