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How to find great penny stocks

by , 25 November 2015

If you want to invest in penny stocks, you need to have a strategy to follow.

Your strategy should help to lower your overall risk investing in penny stocks and help you filter through the penny stock laggards to find the best ones on the market.

So what should you include in your penny stock investment strategy?

Read on to find out…


Perfecting your penny stock investment strategy

 
Penny stocks can be risky investments, but you can take steps to reduce these risks and to improve your chances of hitting it big.
 
This is because penny stocks have size on their side. History shows us that shares in small companies tend to outperform shares in large companies.
 
Penny stocks can boost the overall performance of your portfolio. As when investing in other types of shares on the stock market, it’s important to diversify your holdings. 
 
To do this you need to invest in penny stocks across a number of different sectors. This reduces your sector specific risk.
 

Honing on the best penny stocks

 
There are a lot of penny stocks out there that aren’t likely to grow your money. So you need to have a way of finding the ones that have the best future potential.
 
Some companies are poorly managed, their industry is dying out or they aren’t very good at what they do. These are the companies you need to avoid.
 
To exclude these penny stocks, you should look for the following traits, Sean Keyes in Risk and Reward explains…
 
Profitability
You should only invest in profitable penny stocks. You want to see growing margins, gross profits over assets, free cash flow and return on equity.
 
Growth
You want to see signs of strong growth over the past few years and evidence that this is going to continue into the future.
 
Safety
You want to see low levels of volatility in a penny stock’s share price and low levels of debt. 
 
Prioritise shareholders
Check what a company does with its profits. You want to see shareholders receiving some sort of reward from the company. And you should be wary of a company that issues more equity.
 
So there you have it. How to find great penny stocks.
 
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How to find great penny stocks
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