Best Penny Stocks To Buy Right Now - Which Ones Should You Get?
Nowadays, getting higher returns on investment is possible even when you do not have
a long investment horizon or large sums of money to invest in blue chip companies. This is where penny stocks come in. Technically speaking, these stocks trade for less than 5 dollars per common share. They are traded in over-the-counter transactions rather than through exchanges. There are some significant gains possible from these investments, often in the range of 50 percent within a few short months.
Criteria for Picking The Best Penny Stocks
So, now that you have decided that these stocks are worth your money, the next decision would be to pick the best ones to buy right now. Timing is everything. You can follow certain criteria in the choosing although it must be emphasized that there is no hard and fast rule in penny stocks investment.
First, you have to calculate the Price-Earnings (PE) ratio of the penny stocks under consideration. This is the most basic formula used in stock trading, which can be arrived at by dividing the stock price with the earnings per share. Now, you can compare all the PE ratios of the common stocks, of which the ones possessing the highest ratios maybe the best penny stocks to buy right now. The emphasis is on maybe as the other criteria must be considered in the final decision.
Second, you must compute for the Price/Earnings/Growth (PEG) ratio, which is simply the PE ratio divided by the projected growth in the nest 3-5 years. This time, you will opt for the penny stocks with the lower PEG, preferably those with less than 1.0 ratio.
Third, you have to ask for their latest audited financial statements. Although net profits are also important, you just do not look at the bottom line, however, since good cash flow is the more important consideration in choosing the best penny stocks to buy right now. After all, you want your company to have a steady and stable supply of cash to operate successfully especially as net profit can be deceptive. Think intangibles like depreciation, write-offs and goodwill.
Fourth, you must do your research in terms of the quality of management. You can never totally rely on numbers and figures for indeed company management is more than just numbers and figures! It helps to make decisions in investment when you have knowledge of the good credentials, good experience and good ethics of the people running the company at the highest levels.
When considering the matter of the best penny stocks to buy right now, you have to be knowledgeable about many things, from the general state of the economy to the general state of the company.
Common Pitfalls In Choosing The Right Penny Stocks
Always keep in mind that these stocks may be diamonds in the rough that can yield more than double, even triple, your initial cost of investment in a short time but the risks are still very high. You have to take the necessary precautions to protect yourself against risks like fraud from unscrupulous brokers, stock manipulation, limited liquidity and absence of financial reports, among others.
by: Mike Singh
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