What are penny stocks?
Penny stock is essentially a stock of a small company that is traded less than 5 USD per share. Nothing more.
People tend to say that investing in penny stocks = easy way to get rich. But it’s NOT TRUE.
This is only true if you know how to pick winning penny stocks. The takeaway of this blog post is to teach you how to find winning penny stocks.
Penny stocks are usually associated with small companies and small companies are usually not very well marketed. As a result, there isn’t a lot of investors or analysts keeping close observations of the company’s performance.
Investors also often find it difficult to sell penny stocks because the demand is low. (This means that penny stocks are not “liquid”).
You need to be aware of this: Often, penny stocks are not priced correctly by the market (which means that you can either buy a stock at a bargain price or you’re overpaying by a lot).
When an investor finds a penny stock at a bargain price, these are the opportunities that investors profit the most.
However, it could go the other way too (an investor could lose it all if he or she overpays by a lot).
Past 5 Most Successful Penny Stocks
Amazon (NASDAQ: AMZN)
Amazon has been one of the most rewarding penny stocks. Back in November 2001, Amazon was trading for only 6.78 USD per share. Currently, it’s traded for approximately 3203 USD per share.
Since November 2001, Amazon’s cumulative return is 47,143%. How crazy is that?!
Apple Inc (NASDAQ: AAPL)
Back in the early 2000s, Apple Inc was traded for under 80 cents (USD) per share. Nowadays, Apple is trading for about 127 USD per share. If you purchased a share of Apple in the 2000, the cumulative return is 18,087%.
Did you know that every year, consumers spend around 1,250 USD to purchase the newest Apple product?
Monster Beverage Corporation (NASDAQ: MNST)
The Monster Beverage Corporate was a huge success in the food and beverage industry. In 2005, Monster Beverage Corp was only trading around 66 cents (USD).
If you’ve bought their stock in 2005, you would’ve made 12,071% return (assuming that MNST is trading around 93 USD).
Advanced Micro Devices (NASDAQ: AMD)
AMD hasn’t really reached its breakthrough up until 2 years ago, where they developed high-performance computer hardwa
re that was unseen on Earth. In 2012, AMD was at a low point, trading for 2.10 USD per share.
Now, it costs 78 USD to purchase one share of AMD! If you’ve invested in AMD in 2012, your cumulative return is 3,575%. It’s still a shocking return.
Ford Motor Company (NYSE: F)
Ford Motor commonly known as Ford, has been around for a long time. But not long ago, in mid-2009, Ford was still a penny stock (traded at 2 USD per share).
Today, it costs about 12.5 USD to purchase one share of Ford. If you’ve bought yourself some Ford stocks instead of a Ford truck, you would’ve had a great 524% cumulative return.
Note: Vehicles are usually non-rewarding investments, unless you’re buying highly-limited supercars intended for resale at a higher price.
How to pick winning penny stocks?
Winning penny stocks are penny stocks that are fast growers in the medium to long run.
You’re looking for companies that will grow exponentially for the next 3 to 8 years. These companies are called “fast-growers.”
To pick winning penny stocks, you will have to do a lot of research.
Profits doesn’t come easy.
But I’ve made the whole process easy for you.
I’ve outlined the key points and characteristics of a WINNING “fast grower.” These facts are backed by Peter Lynch – one of the best investment managers in history.
Note. Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making it the best-performing mutual fund in the world.
Key Points and Characteristics of a Fast Grower
Every single point below helps you to distinguish between a WINNING or LOSING penny stock.
- When investigating whether a company is fast growing or not, look at its earnings growth rate in the recent years.
- (My favourite growth rate per year are the ones in the 20 to 25% range.
- Any more than 25% growth, I would be wary of the company.
- When fast growers are growing >50% per year, these companies often focus too much on expanding, instead of quality of service. Therefore, they usually fail in the long term. Avoid “fast-growers that are growing too fast”.
- Other than earnings growth rate, you should investigate if the company has duplicated its successes in more than one city or town. For the company to grow, the business has to be “scalable.”
- Scalable means that the business model can be duplicated in large volume.
- The penny stock should have large room of growth
- Example: If the company is established in southern California and begins to talk about into northern California. This is a good sign. There are forty-nine other states to go expand into, that’s a lot of room to expand in.
- Look at the penny stock’s expansion speed, is it speeding upwards or slowing down?
- You need to take into account the industry of the business. If the business is a recurring subscription related business, slowdown is not as harmful.
- But if the business model focus on “one purchase per customer”, then a slowdown can be devastating.
Apply this rule only if you’ve already found a winning penny stock:
- If the company has little to no press/media/analysts talking about the penny stock, OR it is owned by very few institutional investors, this is actually a good indicator for high potential profit because others haven’t found out about this winning penny stock yet.
- This is a big plus after you’ve found a winning penny stock due to the high upside potential profit.
Keep in mind that a winning penny stock doesn’t have to satisfy all key characteristics. But if it does, then it’s worthwhile for you to invest more into it.
If a penny stock satisfies only a few of these conditions, then it is probably an average stock that performs well in the long-run. It’s not going to give you that 10,000% return like Apple Inc.
By following these key points when you’re doing market research, the odds of finding a winning penny stock are higher.
Be sure to come back to this page so you can revisit all those key points! You can bookmark this page on the top if you’re using Chrome. (or ⌘D)
Which penny stocks are on your watch-list? Let me know down in the comments or DM me at Instagram (@Leinvests).