Investors have varied reactions towards penny stocks. Some were attracted because of its potential high return with just a little investment, while others were turned off due to the high risk involved and its limited liquidity, but as they say, “no pain, no gain.” You just need to decide which among the penny stocks will bring you the optimum gain or a hot penny stock.
So, how will you spot a hot penny stock? Hot penny stocks are stocks that carries a high risk rate with an extremely low price per share. These hot stocks are normally priced well below $1 per share and can provide incredible margin if you choose the right one. But don’t get too excited, these stocks are highly unpredictable that can either give you high returns or completely wipe you out. With this reason, only invest whatever amount you can afford to lose.
Although hot penny stocks are priced so low and can be bought in large number, this is not the secret to guaranteed riches. Sometimes demand for penny stocks is falsely created by companies who resort to unethical means to increase the stock value for their own greedy purpose.
These hot penny stocks do not expose the real value of the company. Some of them are still in a developing stage trying to gain a grip in their industry. Companies need to do their best to increase the value of their stocks to be acknowledged as hot stock for the investors to notice. They need depict that the company is well established by consistently earning profits which is not simple and will take a while as this is dependent on the company’s growth.
Penny stock company should at least have the following to be considered hot penny stock: Good stock structure, it has Outstanding Stock and Float and Authorized Shares, valuation and position of the company, SEC listing, turnover and financial record, transfer agent transparency and good business structure.
For example, if the company maximizes the outstanding stocks and closes to Authorized Shares, it means that there is no strength in stocks.
Find out how many shares the company has in its float. The float is the numerical number of shares currently being traded. Companies listed on the Pink Sheets usually do not make this report public, but is available in other sites. It is usually mentioned on articles written about the Company trading penny stock and in the news. This information can also be found in various internet sites.
Beware of red flags that the company or its investors are just using the penny to stock for their own gain or for fraudulent act.
Here are some of the examples of documented fraudulent act published in New York Times on February 16, 2003.
“On Jan. 31, 2000, Artley T. Bernstein published the first of several articles questioning whether Wellness Universe, a small health services company, was really the target of a $1 billion takeover bid, as it claimed. Eleven days after the first article, regulators halted trading in the shares, and three months later, the company’s founder, George Pappas, was indicted in Manhattan. In January 2001, Mr. Pappas pleaded guilty to charges that he concocted a phony takeover to drive up the stock price so he and his family could sell for a quick profit of $2.3 million. He is awaiting sentencing.”
“In September 2002, Mr. Bernstein questioned the growth prospects claimed by the Vector Holdings Corporation, whose primary business was a stuffed-potato booth at a Florida shopping mall. A month later, the Securities and Exchange Commission accused the company, its president and its transfer agent of violating securities laws — in part for not disclosing that the president, Allen E. Weintraub, had a criminal record. Mr. Weintraub and the companies have settled the cases without admitting wrongdoing, but the penalties have yet to be determined.”
Needless to say, investing in hot penny stocks is riskier than blue chip stocks. Diligent research of the company, its product, would be product or promised development is essential to reduce the risk. Study the trading chart for a few days as it will offer valuable information before investing.