How To Make The Best Penny Stock Pick

Finding the best penny stocks may not seem that easy, but you can increase your odds of locating them, if you take advantage of helpful tools. It's important to consider microcap equity shares as a short-term holding, versus a long-term investment that pays dividends or has consistent gains in share price. In fact, these are speculative ventures, but it's possible to make a profit, assuming you have done proper research and utilized investing tools, at your disposal.

Those that have made the most money trading the best penny stocks will tell you these are not shares you want to buy cheap and hope for appreciation, in a few years. These highly volatile shares could belong to companies in a downward business trend, but a hyped-up newsletter recommendation could be all that's driving a short-term jump in share prices. When you find the best penny stock pick to purchase, you should be already planning your exit strategy, selling when it reaches a certain profit range or when it starts declining to a certain level. It isn't difficult to lose all of your investment, if you ride a decline too far and share price run-ups can be short-lived.

There are exceptions to every rule and you could accidentally find the next Google or Facebook, but the odds are against it. Instead, finding the best penny stocks involves looking for high trading volume, good underlying financial fundamentals and you should be familiar with how the company makes money. In other words, if you don't understand what the company manufactures or what service they provide, steer clear of getting involved in start-up businesses you can't properly judge.

There are some penny newsletters that hype shares, offering a chance to run-up share prices, but this appreciation can be short-lived if profits and sales aren't there to support it. When searching for the best penny stocks, you may consider some of the stock-picking software on the market, but there are fundamentals you can look for on your own, including:

    * A comparatively higher price-to-earnings or PE ratio. Calculate this number by dividing the going share price by the amount of the profit a company earns.
    * A comparatively lower price-earnings-growth or PEG prediction. Calculate this number, once you have determined the PE. The price-earnings ratio is divided by the projected 3-5 year earnings, offered by analysts.
    * A high profit margin. The annual profits can be divided by the annual sales, to find this number. The less capital it takes to turn a profit, the more potential for profit.
    * Steady and sufficient cash flow. Since a company needs cash to purchase raw goods and pay expenses, sufficient cash flow is an important factor to look for. Some of the best penny stocks could have once been large companies that are in bankruptcy or going through downsizing, like in the case of automakers.

These are the primary fundamentals to look for, when searching for the best penny stocks. If you take advantage of investment tools on brokerage websites or you have stock-picking software, it could be easier to locate the best penny stock pick for your portfolio. Volume and timing can be the most important factors to showing a profit, however.