Buying Penny Stocks in 2017 Just Got Easier with This 1 Tip

Penny stocks in 2017 have been very profitable for investors, with some gains reaching over 1,000%. But some of these companies can be risky investments if you don’t conduct proper research. That’s why today we’re going to show you one investing tip that will let you easily determine which penny stocks to avoid...

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The 3 Best Strategies for Trading Penny Stocks Today

Investors are attracted to penny stocks because they offer explosive gains. AVEO Pharmaceuticals Inc. (Nasdaq: AVEO), for instance, has been one of the top-performing penny stocks of the year, rising from $0.54 per share to $3.03. That means investors have seen a 461.1% return over that time – crushing both the Dow Jones and the S&P 500’s 10.1% and 8.6% respective returns.

But penny stocks can drop just as quickly as they went up. Despite being up on the year, AVEO stock took a 25.7% dive in just over a week from July 10 to July 18.

This is what makes penny stock investing tricky – investors can see a stock like AVEO posting triple-digit gains and decide to buy in, only to lose 25.7% of their investment in eight days.

The volatility is one of the reasons why Money Morning Chief Investment Strategist Keith Fitz-Gerald recommends never putting more than 2% of your portfolio in penny stocks.

But that’s not our only tip – here’s another one of the most important penny stock investing tips to use this year...

Profit from Penny Stocks in 2017 with This Easy Tip

The best way to figure out if certain penny stocks are safe for your portfolio is to check out the company’s most recent annual 10-K filings.

10-K filings are financial documents submitted to the U.S. Securities and Exchange Commission (SEC) on an annual basis, and they cover every aspect of a company’s finances. The most important sections include annual revenue, earnings, and outstanding shares. Think of it as a company’s yearly report card available to the public for investors to see if the company is performing well.

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For penny stock research, one of the key sections you need to look at is “Executive Compensation,” often located under part III of the filing. It shows exactly how the company’s top executives, including its CEO, are paid each year.

When the executives are paid in stock options, it means they are not receiving their payouts all at once. It indicates they have faith in the long-term performance of the company. Options incentivize executives to stay long-term and contribute toward the company’s profitability, which ultimately makes the options more valuable.

But executive compensation in all cash is a red flag for investors. That’s because cash compensation does not incentivize executives to work toward stronger long-term performance. It makes no difference to their compensation if the firm does well or poorly.

A good rule of thumb to remember is to invest in companies with executives who are invested themselves.

penny stocks in 2017

Despite their importance to penny stock research, these 10-K documents are up to 100 pages long. Reading through these filings can be time-consuming for investors, and the technical jargon can make them difficult to decipher.

But Money Morning Small-Cap Specialist Sid Riggs has you covered when it comes to finding the best stocks for your portfolio. He does the research for you. Today, he’s recommending one set to soar thanks to the exploding auto market in China.

Chinese auto sales have been on the rise in recent years, climbing 45% between 2013 and 2016. That rate of growth smashed U.S. and EU sales, which only increased 12.45% and 22.9% over that period, respectively.

Although shares of this company cost more than the typical $5 penny stock cutoff, Sid only picks companies with strong growth potential. His recent small-cap stock pick has climbed 43.9% since he first recommended it to Money Morning readers on April 19.

Here's Sid's pick for the best small-cap stock to own right now...

One of the Best Small-Cap Stocks to Invest in This Year

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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, Ford Motor Co. then-Vice President (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 companies are Tencent Holdings Ltd., JD.com 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 21.6%, going from today's price of $36.89 to $44.87 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.

With booming Chinese car sales expected to continue and a projected increase in auto financing, BITA stock is the best way to profit from these two emerging trends.

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