Penny stocks that have potential for a long-term high yield are the best penny stocks. Speculative securities that
are priced low are known as penny stocks. These are not traded at major exchanges like the NASDAQ or NYSE. Penny stocks with long-term profit
potential are also called top penny stocks or hot penny stocks.
Who Issues Penny Stocks?
Penny stocks are generally issued by companies with small market capitalizations. They are traded at half the price of
their well-established counterparts. According to the US Securities and Exchange Commission (SEC), any stock that is traded
lower than $5 should be categorized as a penny stock. In the UK, this limit is set at lower than £1.
An established company will issue a penny stock owing to one of the following two reasons:
When it is on the brink of incurring a large expense and intends to finance this through funds raised by an initial public
offering.
When it reaches the apex of its growth and plans a change in its tax structure or the dispersal of profits.
How to Identify the Best Penny Stocks
To identify a top penny stock from the universe of substandard ones is not an easy task. Here are some tips that you can
consider:
- Top penny stocks are usually traded in bulk. Invest only in those stocks that trade at a minimum volume of 100,000 shares daily.
- The volume of penny shares traded reduces with an increase in the quoted price. The best penny stocks are priced between $0.05 and $2.
- Irrespective of the returns offered by companies, avoid investing in penny stocks that have negative earnings per share.
- The best penny stocks are those that are currently appreciating.
- Invest in penny stocks that belong to sectors experiencing a bull run.
Investors dream of finding penny stocks yielding anything up to 1000%. While some investors have benefited from such gains, it
is not guaranteed. Moreover, it is difficult to get full disclosure from penny stock companies and the rules that apply to them
are much more lenient that those that apply to regular stocks. So, one should be extremely cautious when investing in penny
stocks.