I am going to share with you five way to really make money with penny stocks. I am not going to include any methods of going short, as more than 99% of those trading penny stocks have absolutely no ability to short any penny stock. These methods are tried and tested. The most important thing to understand when looking at this list is that you can make a huge mistake by trying to squeeze money out of a stock where you have a profit. Part of these methods involves learning to actually take a profit even if you just “know” it is still going up in price.

Method One: Catch a Star Before it Rises

I know that title sounds stupid to anyone that has done any stock trading. While we all would like to know which stocks will become shooting stars, it is actually impossible to pick out which stocks will become rising stars. That’s all very true.

There is a caveat. With smallcap stocks there is a way to understand when companies are about to “get things rolling on (symbol) WXYZ.”  There is a very typical formula that companies follow for gaining smallcap investor interest in their stocks. Let me describe how it happens in about 98% of the companies I have seen. FYI, I when I consult with smallcap companies regarding investor relations, I teach them this is how NOT to do it.

The typical smallcap company CEO or money man behind the company watches as their stock continues to get more and more non-trading days. The CEO starts getting calls from some of the investors who bought restricted shares at much higher levels and are watching their investment tick down from the value they bought in at to probably less than 25% of where they came in. They ask that CEO, “What are you going to do about it? Why are you putting out any information? Why is the Company totally silent?”

That same CEO is starting to see the cash accounts running low. He realizes that on his next financing he is going to have to give out about five times the number of shares to get the same cash in to keep his paycheck company. (Sorry, I meant “keep the business operating.”)

That CEO realizes he needs to do “something.”  He starts getting other calls from various money guys telling him how they can raise funds for him using the equity in his company. Each one says the same thing: “I can do this without undermining your share price unlike others that will call you. “

Quick Aside: 

I get these calls and emails on behalf of my clients several times a week. I always ask these “lenders” the same question:  “ Please send me the symbols of the last companies you have raised funds for, the name of the CEO of each company, the phone number of each CEO and the email of each CEO. When you send that, let’s talk.” I get all kinds of callbacks and emails, but nobody ever has a happy CEO that would endorse any of them.

Back to our Method One – already in progress…

For that “something” every single CEO does exactly the same thing as a first step. They put out a company sourced press release with no outside IR people or capital firms mentioned. 

Did you get that?

After months of silence and virtually no information the Company issues a press release that sounds like a desperate attempt to get people interested. Many times these are “letters to shareholders” or something like that with the attempt to solve the entire problem in less than 600 words. Over 600, and most newswires charge more!

You need to identify such companies and do further due diligence to see if they have any value. You need to make sure it is an operating company. You need to verify this through three or four sources, not including the company’s CEO.  You need to make sure they are not close to doing a reverse split. You need to see if they company has one or more classes of preferred stock that essentially make any investment totally worthless in its long term outlook.

Don’t use just one news source to verify that any particular company has not put out a press release itself in a long time. Check the top newswires directly. These include:

There are other big news wires now that are not necessily linking off of all sites you look for news releases. They are still important wires, and many smallcap companies use them.

These include:

CRITICALLY IMPORTANT:

I am ONLY talking about news release that come from the public company itself. There are promoter and research companies that put out press releases all of the time “under the ticker” of public companies. I am not talking about those. 

Most press release say at the bottom of the release something like this:

Source: Medbox, Inc.

A promoter release will be more like this:

Source: Promoter of Stocks, LLC

A research company release will look like this:

Source: Bob’s Fly-By-Night Equity Research, LLC

Not all wire services make this clear. You sometimes just need to read a paragraph or two to see who has issued it.

The Steps for Method One:
  1. Identify a public company that is putting out a release for the first time in a long time. Be sure that it is a company-sourced released, and not a release issued by some third party.
  2. See if they have preferred stock that could totally undermine the value of the common shareholders. If they do, likely this is not the stock for you.
  3. See if they are an operating company. That starts with a phone call to the company. Not an email. An operating company needs business. If they don’t answer the phone or call you back at all, it is a sure company to pass one. Answering the phone does not mean they are an operating company. It is just one part of the checklist. Read SEC filings on the company, if any. Look at their website. Does it appear real? Check how old the domain is. Go to the “Wayback Machine” found via Google and see what their website looked liked weeks or a year or two ago.
  4. If they don’t have a product or service ready to sell, they are not in business and should be passed on. Always pass on non-operating businesses. They need to pay their CEO salaries and often the demand for their shares plays a key role. Some even sell through distant family members or weird corporations out of the country.
  5. See if you can identify just one real customer. Don’t call them and ask. Just see if there is any way to find anyone that is happy.
  6. Pass on companies that use either of these two terms – “Memorandum of Understanding” or “Letter of Intent.” If you see MOU’s or LOI’s in a press release, run away ASAP so you don’t lose your ASS.