1 Tip to Follow When Buying Penny Stocks in 2017

When buying penny stocks, it’s important to follow this one easy tip we’re about to show you…

That’s because although penny stocks can offer quick gains, sometimes these gains come for fraudulent reasons. If a penny stock is found to be fraudulent, investors can ultimately lose money.

The 3 Best Strategies for Trading Penny Stocks Today

For example, shares of Chinese energy firm Hongli Clean Energies Technology Corp. (Nasdaq: CETC) skyrocketed 144% in one week from $1.90 on March 31 to $4.63 on April 7. CETC stock was even featured on our April 19 top penny stock gainers list.

But the Nasdaq halted trading of CETC stock when it was later found that Hongli allegedly misled investors by reporting false financial statements between Oct. 13, 2015, and April 7, 2017. Now, Rosen Law Firm – which specializes in defending investors – is filing a class-action lawsuit against Hongli for investors who bought in between those dates.

If Rosen loses the suit, CETC investors who bought shares between those dates could end up losing their initial investment. Cases like Hongli show why it’s crucial for investors to learn how to tell if a penny stock is legitimate or fraudulent.

Here’s our one important tip to consider when determining whether or not a penny stock is legitimate, plus our best small-cap stock to buy in 2017…

1 Tip to Follow When Buying Penny Stocks This Year

One of the most important things to do when looking at a penny stock is to closely examine the 10-K filing.

buying penny stocksThe 10-K is an annual comprehensive summary submitted to the U.S. Securities and Exchange Commission (SEC) that outlines everything about a company. It includes info on the company's financial health, revenue, earnings, revenue, history, and outstanding shares, among many other things. Since the SEC is a federal agency, firms that falsify their 10-K filings can be charged with fraud and possibly end up having their stock delisted.

Although those areas are important for assessing a company’s financial health, the most important area to dig into is the “executive compensation” section located in Part III. This provides info on how the company’s executives – including the CEO – are paid and details whether or not their compensation is mostly in options or cash.

If you see the CEO and other executives being compensated in stock options, it indicates they’re committed to sustaining the firm’s financial health. Since they’re compensated in shares of the company’s stock, they want the firm to keep growing so their shares become more valuable over the long term.

But if the executive compensation section shows the executives are strictly paid in cash, you should be skeptical of investing in the company. That’s because it shows the executives don’t have enough faith in the company’s future to be paid in shares. They’ll still get their salary until the company’s share price hits $0 and the firm goes bankrupt.

In other words, it's very risky to invest in a company when the company's own executives don't.

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While the 10-K is extremely important when researching penny stocks, these documents can be up to 100 pages long. Not to mention they’re typically written by the company’s accountants, who use dense, technical language that can be difficult to understand.

That’s why Money Morning Small-Cap Specialist Sid Riggs does the research for you.

And Sid – whose recent stock pick has given Money Morning readers a 50% return since his first recommendation on April 19 – is recommending another one of the best small-cap stocks to buy in 2017.

Sid’s recommendation is a company that develops and sells medical devices. Three of its products received Food and Drug Administration (FDA) approval between 2010 and 2012 alone. In fact, one of these products is the first of its kind sold over the counter. That means the firm will have a profitable edge over other companies trying to sell a similar product – an edge that’s reflected in the stock’s incredible 104.9% gain so far this year.

But Sid sees the stock continuing to rally due to the firm’s stunning earnings growth. Over the last four quarters, it has smashed analysts’ earnings projections by an average of 57.6%.

In other words, Wall Street banks have consistently lowballed the company’s profitability. That makes now one of the best times to buy the stock, before the big banks catch on.

Here's Sid's small-cap stock to buy right now…

One of the Best Small-Cap Stocks to Consider This Year

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The pick is OraSure Technologies Inc. (Nasdaq: OSUR), which develops medical devices that detect conditions like HCV, HIV, and influenza. The company also sells drug-screening products that can detect narcotics or alcohol in a person's system.

But OraSure's most popular products include its line of portable cryosurgical devices. These let people apply intense cold to lesions, warts, and other spots on the skin to remove the unwanted or infected tissue.

The company has seen a number of its products quickly receive FDA approval in recent years. In 2010 and 2011, the FDA approved OraSure's blood and fingerstick HCV tests, respectively. And in 2012, the company received FDA approval for its in-home HIV test.

According to the OraSure website, it's the first oral fluid over-the-counter HIV test approved in the United States. That ability to stay ahead of competitors will continue to be a long-term boost to OraSure stock.

In fact, its ability to outperform the market is already showing this year. The OSUR stock price has soared 104.9% so far in 2017, decimating the Dow Jones' 10.3% gain and the Nasdaq Biotechnology Index's 21.3% return. And Sid expects those gains to keep coming as the firm continues to stay ahead of the competition.

The stock has also blown through Thomson Reuters analysts' previous one-year price target of $16 that they estimated back in June, with OSUR currently trading at $17.94.

Now, those same analysts are raising their price target, and they predict OSUR stock will rise 17.1% to $21 by July 2018.

However, the company keeps growing while analysts keep underrating it, and that means it's a value buy right now…

Since Q2 2016, OraSure has smashed earnings estimates by an average of 57.6%. During the last quarter of 2016, the firm posted $0.13 earnings per share, exceeding the $0.05 analyst estimate by 160%. It kept that streak going in Q1 2017, when it earned $0.21 per share and beat the $0.18 projection.

“That tells me analysts have almost perennially underestimated the company's potential – something they won't do for long,” Sid said. “Which is why you don't want to delay for a New York minute if you're as interested as I am.”

With a strong track record of FDA approval and streak of smashing analyst expectations, OSUR is one of the best small-cap stocks to buy in 2017.

Tiny $6 Million Company Poised for a 28,700% Sales Surge

After an epic legal battle, a tiny $6 million company has just won in a shocking patent verdict.

With 40 registered patents and 500 patents pending, it’s positioned to dominate the U.S. medical markets for decades to come. And an imminent announcement could ignite a 28,700% sales surge.

Bill Gates, as well as the billionaires at Google, have loaded up on this tiny company. And Wall Street insiders have boosted their holdings by as much as 2,000%.

Go here now for full details…

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