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Why penny stocks give your money the best growth potential

by , 30 July 2015

Many investors tend to ignore penny stocks, the smallest companies on the stock market. They believe they're too risky and investing in them is simply not worth it.

But by ignoring these smaller companies, you're ignoring the potential for growth.

Many of the companies in the small-cap index and on the AltX are brimming with potential and they can give your portfolio a much needed boost.

Let's take a closer look…


The case for penny stocks


While investing in the heavyweights of the stock market that make decent profits and grow their dividends is a good investment strategy, you could be ignoring a vital sector of the market.

Large companies have the benefit of scale and lower borrowing costs, but that doesn’t mean they can exploit economic trends. When competition rises, they tend to eat into each other’s margins, Merryn Somerset Webb in Money Week explains.

If you want to protect your portfolio from low growth, smaller companies or penny stocks are worth looking at.

Yes many smaller companies have fallen on tougher times due to economic constraints, but many are great “regular turnover, regular profit” companies, says Gervais Williams, managing director at fund management group Milton.

And many of these smaller companies are extremely undervalued. In other words, they’re cheap.

As Williams highlights, this isn’t the only reason to look at smaller companies. These businesses “can grow even when the world’s not growing… it’s all about the ability to invest capital for productivity gain when the world’s not getting much productivity”.


How to pick great penny stocks


Avoid investing in penny stocks that:

  • Balance sheets are showing signs of strain;
  • Don’t have emergency funds;
  • Aren’t growing sales; and
  • Have small profit margins.

You want to uncover the penny stocks that are growing their sales, don’t have a lot of debt and have comfortable profit margins.

So there you have it. Why penny stocks give your money the best growth potential.

*********** New release ************

Did you miss out on Francois Joubert’s Penny Stock Boot Camp on the 20th of June?

It’s not too late. We filmed every presentation. Every investment idea.

You can still eavesdrop on the entire event right here.

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Why penny stocks give your money the best growth potential
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