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Picking a Penny Stock That is Going Up – Five Tips

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Five Penny Stock Tips to Find a Penny Stock that is Likely to Go Up

I get asked all of the time how do I pick the right penny stocks?  Some say, I want a penny stock that is going to go up 100 percent. How do I find that?

The question is easy to answer. There is no guarantee that any penny stock you pick is going to necessarily go up or give you a 100% gain – or even fraction of that. The important thing to understand in penny stocks is that they are different than traditional stocks (those listed on NASDAQ, NYSE and AMEX). The difference is that while a traditional listed stock moves on earnings and potential profit, penny stocks often move for other reasons. These reasons include hype, rumor, who is promoting it, who is on the board, a rapper or sport celebrity tweets the symbol, or the company puts out release after release that get attention.

How do you pick one that is going to be a winner?

I am going to give you several FIVE WAYS TO PICK A PENNY STOCK and explain those.

Let’s start with Number Five

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Choose a stock that is NOT down 90% or more over the past year.

While that eliminates many stocks on the Pink Sheets and OTC Markets, it is a great way to screen out losers. Any management that lets a stock totally fall apart once will likely do it again. And it does not matter if they have changed emphasis or not as far as what the company does, a loser stock is a loser stock if it is down that dramatically.

Exceptions: The Company or the shell of the Company is bought out by better people. Look at the people’s history in that case with other public companies.

Up Next: Number Four and Cash

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Do they have money to operate?  Simple, yet critical question!

How much cash do they have on hand? This mostly applies to companies that are fully reporting as some Pink Sheets you never really know. Look at their latest 10Q or 10K and see what amount of cash they have on hand. A company with less money in its bank accounts than the typical college student is doomed to failure. While someone might come along and fund it, they are very likely to fail quickly if they have no cash. Also – the very fact they have little to no cash means that even if someone does fund it they are being funded from a position of weakness. Look for reverse splits and a huge issuance of shares over time.

Up Next Number Three: You’re a Commoner, Insiders are Preferred

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There is almost nothing worse than a company that has “preferred shares.”

Ask yourself this question: “Why does a company have preferred shares?”

Here is your answer: “So those holding the preferred shares never lose control of the company even as they issue more and more shares.”

IT’A ALL ABOUT DILUTION!

Get that? They can dilute the shares to no end and profit from it, and then grab it all back and take control again (and again, and again). When you read those 10Q’s and 10K’s, look for the preferred shares. With companies that are not fully reporting, you have to dig a little deeper. Go back to filings from two, three, maybe even five years ago. As you look up the symbol, you can find old filings that may be under a different name. Those old filings with the SEC will show you if the company has had preferred shares issued. Preferred shares – like new kinds of taxes – basically never go away.  Once preferred shares are created, they keep them alive as a way to keep control.

Up Next Number Two: The People

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PEOPLE WHO LOVE TO WORK WITH THE SAME PEOPLE OVER AND OVER

Search the SEC filings for each of the people’s names associated with the Company. While you are not likely to find someone with huge issues if they are currently on the board or in an executive position with the Company, it does show you what other companies they have been associated with in the past. Follow what happened to those companies. You are now looking into the future for this Company.

BIRDS OF A FEATHER FLOCK TOGETHER

Look at other people on this deal and you will see many of those same names on prior deals. Sometimes you see six or eight people that are on deals over and over.  Then over time you see a name or two drop off. Look up those names that dropped off. Did they loose interest in working with this group? Or did they get pinged by regulatory authorities?  That often tells you the kind of people you are dealing with on the current deal.

 

Up Next Number One: Social
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THE LOVERS AND THE HATERS TELL YOU MORE THAN YOU MAY REALIZE

Everyone always laughs when I tell them the most important places to check when checking out a company. Insiders likely hate me even mentioning this. It’s the message boards. You can look at Ihub and the Yahoo Message boards for companies and get the complete low down on most companies.

ONE WARNING: MANY IHUB BOARDS ARE CONTROLLED BY LOVERS OF THE COMPANY.  That means you cannot trust the boards. If you see posts are deleted over and over, it is most often lovers of the Company stamping out criticism.  I was once close to a company that I began to realize was not what I thought it was originally, and then I saw that the board was rigged for them. I even had Ihub moderators come to me to try get paid to keep the board positive.

Once you know that can happen, you can quickly read the board and know what you are dealing with. There are other due diligence boards and anti-fraud boards that cover stocks with fair moderators. Those are great sources as well.

FYI – I have been banned at Ihub for years, and it is due to such moderators.

The Yahoo Boards are not moderated, so you get a great picture of both sides of the discussion. Unfortunately, not as many discussions take place on smallcap stocks on the Yahoo Finance Boards.

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