Make Money from Penny Stocks in 2017 with 1 Simple Tip

If you want to invest in penny stocks in 2017, we have one tip to help you do so safely...

Penny stocks have the potential to deliver market-beating gains, but there are also plenty of scammers looking to take advantage of investors who want quick returns.


The 3 Best Strategies for Trading Penny Stocks Today

The quick returns that penny stocks offer are the most attractive aspect of penny stock investing. For example, shares of Daré Bioscience Inc. (Nasdaq: DARE) soared 154.5% in less than a week, from $4.44 on June 30 to $11.30 on July 5.

But those explosive gains can be the result of a fraudulent scam committed by the company. Shares of Cynk Technology Corp. (OTCMKTS: CYNK), for instance, surged 24,900% from $0.06 on June 17, 2014, to $15 by the end of July 2014.

Once the U.S. Securities and Exchange Commission (SEC) caught wind of this incredible gain, it investigated the company and found it to be nothing more than a shell company engaging in a "pump-and-dump" scam. The leader of the scam - a California stock promoter named Gregg Mulholland - netted $300 million from it, but was ultimately sentenced to 12 years in jail for his role in the scheme.

Despite examples of fraudulent penny stocks, not all of them are bad for your portfolio. In fact, there's one easy way to determine whether or not a company might be trying to scam you...

1 Simple Tip to Use When Investing in Penny Stocks in 2017

When you find a penny stock that you might be interested in buying, one of the most important things to do is investigate its most recent 10-K filing.

penny stocks in 2017The 10-K form is a document submitted every year to the SEC that summarizes every aspect of a firm's financial health. It details annual earnings, losses, revenue, outstanding shares, and executive compensation.

Usually found under part III of the 10-K, the "Executive Compensation" section is important for penny stock investors. That's because it explains how the firm's CEO, board members, and other management employees are paid.

If you see that these high-level managers are mostly paid in the company's stock options, it shows they're dedicated to growing the company as much as possible. After all, the CEO's options can only be as valuable as the firm's stock price, which means they need the company to grow profitably. That indicates the firm may be worth your investment.

But if they're strictly paid in cash, it means they don't have a stock incentive to ensure the company's financial growth over the long term. Cash compensation is a red flag because it shows that the executives could be looking to cash in on their firm before the penny stock price drops to zero and the firm files for bankruptcy.

In other words, a penny stock's safety mostly comes down to whether or not the executives are paid in cash or in shares of the stock. If the compensation is cash, they're not invested in the company's future, so it could be risky for you to be.

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Even though they're important for penny stock research, 10-K filings can be intimidating. They're typically up to 100 pages long and written by company accountants who use dense language that can be difficult to decipher.

That's why Money Morning Small-Cap Specialist Sid Riggs prefers to do this digging for you and find you the best small-cap stocks to buy...

Today, Sid - whose April 19 pick has handed readers a 37.4% return since then - is recommending a direct play on one of the world's fastest-growing markets.

The market we're referring to is the booming Chinese auto market. From 2013 to 2016, China's auto sales surged 45%. That crushed sales from the United States and European Union, which only increased 12.45% and 22.9% over the same period, respectively.

While this stock is a little pricier than a typical penny stock - which are under $5 - you can rest assured this is a legitimate company with real growth potential. Here's Sid's newest recommendation...

One of the Best Small-Cap Stocks to Buy in 2017

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Sid's small-cap pick today is Bitauto Holdings Ltd. (NYSE ADR: BITA), which provides marketing, Internet content, and other advertising services to Chinese automakers and automobile customers.

The company has its hands in three of the country's biggest non-manufacturing-related auto segments: advertising/subscriptions, transaction services, and digital marketing. All three sectors have been growing this year, with each rising 4.2%, 193.5%, and 4.3% year over year in Q1 2017.

One of the biggest reasons Sid is bullish on BITA stock is the firm's presence in China's growing auto industry. The country sold 23.7 million automobiles last year, surpassing U.S. sales of 17.5 million by 35.4%.

And China's growing sales have been attributed to the rapid rise of the country's middle-class population.

"China's middle class is expected to reach 550 million people in five years," Sid said. "By comparison, the U.S. middle class clocks in at 120.8 million people."

"Just like you and me, they want everything we already have (and take for granted), especially automobiles, which are seen as a huge status symbol associated with success."

But the real catalyst for Bitauto stock in 2017 will be its financing operation...

You see, Chinese consumers have historically used cash to buy not just cars, but also real estate and other properties. In 2014, then-Vice President of Ford Motor Co. (NYSE: F) David Schoch said in a conference call that about 80% of all Ford buyers in China used cash, and only 20% financed their cars. Similarly, the National Association of Realtors said Chinese buyers paid entirely in cash in 71% of all U.S. real estate deals.

However, these consumers have been shifting toward financing their cars in recent years. And according to Deloitte, 50% of all auto purchases in China will be financed by 2020.

This trend will be huge for Bitauto's transaction services business, which, as mentioned, is already seeing explosive year-over-year growth of 193.5%. Not to mention, that particular business just received $1 billion in funding from three Chinese Internet companies. These include Tencent Holdings Ltd., Inc. (Nasdaq ADR: JD), and Baidu Inc. (Nasdaq ADR: BIDU).

"BITA's presence as a trusted company for car financing and transactions gives them a huge first-mover advantage to up-and-comers who have yet to build a loyal user base," Sid noted.

Analysts from Thomson Reuters predict BITA stock will rise 20.9% from today's price of $36.55 to $44.19 by August 2018. However, Sid believes it could post much bigger returns than that, as China's auto market continues to explode and Bitauto's transaction business expands from the rising number of consumers opting to finance their vehicles.

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