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The key to how to find good penny stocks to buy today is knowing what you are buying and if it fits your needs.
First, let's define "good" penny stocks to buy. Good penny stocks to buy are those that aren't the classic penny stock trap. That means they aren't a means for scammers to lure investors to a stock, inflate the price with all these new buyers, then sell it before the unknowing investors have a chance to get out. The innocent investors often buy the penny stock at a high price and are left with it at a low price.
There are also the "penny stock of the day" overhyped picks. These stocks hit the news because of a massive upward move in the share price. As investors pile in, thinking it's their next get-rich-quick ticket, the shares come back to reality. They usually got pushed up because of good news from the company or from a company in the same sector, but sometimes the real story isn't as strong as the initially reported one.
This is how penny stocks can trick investors. But there are some straightforward ways to avoid these traps. This doesn't mean your profit is guaranteed – no investment is risk free – but it does drastically limit the risk you are exposed to.
So let's take a look at how to find penny stocks to buy – so you can grab onto the next share-price doubler instead of the loser of the day.
The Steps to Find Good Penny Stocks to Buy Today
The first thing you want to do as a penny stock investor is figure out how much money you have to work with. Basically, don't invest anything you can't afford to lose. If you do your homework, you shouldn't lose it all – you will be in a good spot to gain. But it's not a sure thing.
We typically recommend no more than about 2% of your portfolio in one penny stock – but there are always situations that allow for different allocations. You have to assess what you are most comfortable with spending.
Next, look at the company behind the penny stock.
How much money does the company make each quarter/year? Is the revenue growing? Is the industry growing? Check out projected earnings and see if the company is predicting a stronger quarter ahead or a weaker one.
Another thing to look at – does this company offer a unique product or hold a small but strong part of the market? Many penny stocks are actually representing companies that are good buyout candidates. That means a bigger, more established – and richer – company could come along and buy the smaller company, valuing its shares at a much higher price than where they currently trade. Those penny stock investors will enjoy the share-price bump if holding that stock. That's a faster way to get a good gain, although not easily predictable.
Good Penny Stocks to Buy Have These Traits
Also look at the stock itself. What is the share price history? How volatile are the price swings? Typically penny stocks are more volatile than the average S&P 500 stock, but not all experience wild share price moves.
Some penny stocks are close to the $5.00 cut off for being in penny stock territory… the higher they trade, typically the more stable they are, although you have to look at the big picture. But we avoid stocks trading for literally just pennies. That is a very speculative area – a story for another day…
We typically only like penny stocks that trade on the New York Stock Exchange or the Nasdaq, instead of less-established exchanges. These bigger stock exchanges have more strict reporting requirements, which means the companies are in better financial shape than penny stocks that trade elsewhere. If your risk tolerance is high, you can open up your penny stock picks to the OTCBB or the Pink Sheets, but that's not for everyone.
Now that we've gone over some of the tips for picking penny stocks, let's take a look at some of the top penny stock picks we see on the market today. Remember, not every stock is for every investor, so make sure you know what you can afford.
Good Penny Stocks to Buy Today
Good Penny Stocks to Buy Today No. 1, Novavax Inc. (Nasdaq: NVAX): Novavax just jumped out of penny stock territory, but it's still close to the $5.00 per share mark, trading at $6.72 today.
Novavax was trading in penny stock range – around $4.61 – just one month ago. It's climbed 46% since then on good news from the Food and Drug Administration for some of Novavax's treatments. Novavax also got a boost when it was revealed that George Soros is investing in this penny stock.
While Novavax is technically not a penny stock at the moment, it's near penny stock range – and it's still a good buy for 2016.
Good Penny Stocks to Buy Today No. 2, Lucas Energy Inc. (NYSEMKT: LEI): Lucas Energy is trading around $4.20 today, up 10% so far this month. Lucas shares spiked last month on news that it would receive financing to help purchase assets. Lucas is an independent oil and gas company. Its stock is up 12% over the past year.
Good Penny Stocks to Buy Today No. 3, GlobalSCAPE Inc. (NYSEMKT: GSB): GlobalSCAPE is involved with keeping information transmitted online safe. It actually pays a dividend – which is not typically the case for penny stocks. It currently yields 1.65% – near the S&P 500's average yield of around 2%. GlobalSCAPE trades for $3.64. This penny stock's shares are up 14% over the past year. This is a penny stock for patient investors. Analysts say it's waiting for return on investment in research and development efforts.