How to Find the Best Penny Stocks

Investing for most people is about trying to make the most money with the smallest investment. This is why penny stocks intrigue the average investor, because they do not require a large investment on a per share basis, but can provide large returns if the stock increases in value. While not foolproof by any means, there are ways to find the best penny stock in which to invest.

Difficulty:

Challenging

Instructions

1. Understand that penny stocks by financial definition are any stock priced at fewer than $10. Most people hear the phrase "Penny stocks" and think these stocks sell for pennies per share but this is not the correct definition.

2. Analyze the balance sheets and income statements on each penny stock. Make sure the revenues for each of the last three years are increasing. Some of these stocks still may have more debt than revenue but they at least must be close to emerging from this debt to post a profit in the near future.

3. Research the underlying business plan and products or services for each penny stock. Some of these low priced stocks may boast a great new product or service but have an incoherent business plan, which prohibits the stock's future growth. Conversely, a penny stock company may have a great business plan but a product or service that will generate consumer interest and company growth.

4. Review the industry in which each penny stocks underlying company operates to determine if there will be growth in that industry. There are industries like the music industry, which is rapidly changing due to technology and may not experience significant growth in the future. However, there may be a penny stock within that industry which could revolutionize and revive that industry. Don't discount all penny stocks which reside in a stagnated industry; still, do the necessary homework before you invest any money.

5. Visit penny stock forums on the Internet and make note of any penny stock generating positive reviews. Beware though that most all of the members of these forums are untrained or novice investors without much experience or real knowledge of these stocks. However, these forums can generate useful penny stock ideas for you to research.

Tips & Warnings

• Any stock carries a certain amount of risk; therefore, research any investment thoroughly and if you are unsure, consult an investment professional for further guidance.