December 15, 2014
Do you feel most penny stocks are scams? You’re not alone as most penny stock traders agree that 99.9% of OTC penny stocks are destined to fail or go to no Bid. Notice the OTC emphasis on the statement. The OTC isn’t the only place to find penny stocks however in my opinion!
Most traders can’t agree as to what is a penny stock. For example, the SEC has stated its thoughts on what constitutes a penny stock in the various stock boards or exchanges of which a company can trade on here. But I consider a penny stock as $10 or less, and take the word “generally” in the SEC’s definition to not be confined to $5 or less, opening up all US boards and exchanges as a trading ground. Some well known traders feel $5, $1, or even $.01 or less are penny stocks. You decide for yourself because it’s your trading style.
Trading choices among the OTC, with its 3 tiers, NASDAQ, or the NYSE opens up many trading possibilities but also the need to get acclimated to the various environments, traders, liquidity, and tactics employed. The point of this post is that some penny stocks can uplist and improve long-term. It takes hard work and research to find long-term penny stock targets so many traders turn to promoters who may offer quick gains (or tremendous losses).
Stocks that fell to the verge of bankruptcy to penny status but came back:
MSN Money: 9 Penny Stocks That Didn’t Stay That Way
Most of the stocks listed in this article, such as Monster Beverage and Pier 1, fell from dollar land to penny status, on the verge of bankruptcy, to only come back to their prior pps levels.
MarketWatch: 2 Penny Stocks That Could Have Made You Rich
This article discusses Concur Technologies and General Growth Properties decline and recovery.
A quick approach to finding a penny stock gem:
Forbes: Fear Not Every Penny Stock
Jordan Terry, with Forbes, starts with the fact that the nature of penny stocks is very risky due to liquidity and pps allowing unscrupulous actions to occur to manipulate the pps. He suggests limiting one’s risk through stop losses and limiting the size of investment according to trading volume.
Jordan switches gears quickly to evaluating companies from a bottom up approach to sift through penny stock targets to find a possible gem:
Utilize Porter’s Five Forces Analysis.
+ Competive rivalry in industry
+ Bargaining power of suppliers
+ Bargaining power of customers
+ Threat of new entrants
+ Threat of substitute products
Nuvilex was analyzed by Jordan and he found overall the company was an 8 out of 10 for the forces analysis. What stood out to Jordan was Nuvilex’s technology that seemed above competitors capabilities. I’d recommend brushing up on doing a Porter’s forces analysis as Jordan doesn’t go into many details. Jordan ends quickly and leaves out a few due diligence tips I would perform such as:
Basic Due Diligence Points
+ Is a product or service being sold and do customers like it
+ Who is management
+ How is Management communication with stakeholders
+ What is the share structure
+ What is the split history and share structure changes history
+ Are filings on time and audited
+ Perform quick financial statement analysis using ratios and compare to other penny stock in the industry
+ Debt info and shares issued so far
Many traders skip fundamental analysis because some of the basic items above are missing. Some traders just use chart analysis and level 2 service to estimate whether buyers or sellers are in control of the pps.
How to find recent uplisters and IPOs:
Now that we’ve gone over some penny stock possibilities for long-term success and some basic due diligence points how do we find these penny stocks to begin analysis? The answer is at the source of where penny stocks reside and by using stock screeners.
iHub: Superstar Uplister board
The Superstar Uplister board was very active from 2010 to 2013 and gave weekly updates of OTC penny stocks that either uplisted or were in ten news as about to do so. Moderators of the board have perused projects elsewhere in 2013 but I like to check in occassionally to see what’s new. Trading OTC penny stocks that are about to uplist is a strategy on itself.
Here are a few ticker examples with pps past and current:
GLOW 12/15/11 $2.10-> $1.38 (high $3.70)
RLGT 1/11/12 $1.50-> $3.08 (high $3.50)
HKAC 2/1/12 $9.70-> $9.93 no volume
CUI 2/17/12 $6.10-> $7.00 (high $11.34)
Here are some penny tickers I followed on the OTC before their uplisting:
PFIE 3/27/14 $3.50-> $3.85 (high $5.97)
ENSV 3/10/14 $2.45-> $3.70 (high $3.70)
LBMH 11/20/13 $2.30-> $3.46 (high $6.00)
This OTCBB list is confirmation of an OTC penny’s actual uplisting.
The initial public offerings can be good sources of new stocks trading on the NASDAQ or NYSE stock exchanges. The chances of being $10 or less are small but do occur.
So how can you find penny stock that are $10 or less? The answer lies with a stock screener. Stock screeners can be found online, through your broker, or via smart phone apps. These screeners also offer a great deal of screening capability besides just stock price so feel free to experiment with them to meet your needs. Here’s a list of sources I use for stock screeners:
+ Barcharts.com and the app
+ stockcharts.com predefined scans
+ FINVIZ.com stock screener
+ Stock Station and Stocks + Options Stocks Live apps by Mobile Interactions LLC (big board tickers only)
+ Stocks Live apps by Cinnamon Mobile stock screens called “activities” (all penny stocks available)
+ Follow a trading group, such as mine via GroupMe by e-mailing me your interest
So, are you beginning to get a feeling that not all penny stocks are scams? That some OTC companies can do better and move forward to the big board exchanges, or existing big board companies can stumble only to return to former glory?
Penny stock trading offers many trading strategies with many traders working to provide info or to deceive you. When group think starts to set in I generally begin to question my existence. Not all penny stocks are scams and it is a challenge to be accepted to find the diamonds in the rough that will aid in garnering trading gains.
toohightoolo 