Choosing the Top Penny Stocks in 2017 Is Easy with 1 Simple Trick

Finding the top penny stocks in 2017 can provide quick profits. But finding them requires more than just looking for stocks to buy at a low price. That's why we're going to show you one way to dig up penny stocks that are both profitable and safe for your portfolio.

Penny stocks are alluring to investors because they can offer double-digit gains in a matter of days. For example, Technical Communications Corp. (Nasdaq: TCCO) climbed from $6.45 per share to $8.70 from Aug. 10 to Aug. 14. That's a 34.9% return for investors in just three sessions.

But their declines can be as sharp and quick as their rallies, which is why penny stocks can be risky investments. Following that 34.9% rally, TCCO stock fell 35.1% to $5.77 today.

This volatility is why Money Morning Chief Investment Strategist Keith Fitz-Gerald recommends putting no more than 2% of your portfolio in penny stocks.

But for those looking for the profits penny stocks can bring, here's our top penny stock investing tip, and it's one that any investor can use right now...

This Is How You'll Profit from the Top Penny Stocks in 2017

Digging into a company's financial filings is the best way to ensure a stock is safe for your money, and one of the most important filings to look at is the 10-K.

Companies submit 10-K documents to the SEC every year. These documents outline every detail of the company's financial performance. Some of the most important sections include details on earnings, revenue, and outstanding shares.

In other words, the 10-K is a report card that demonstrates to investors how well the company is performing in every area of its business.

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The important section to look at when researching top penny stocks is "Executive Compensation." This can usually be found under part III of the 10-K, and it shows how the CEO and top executives are paid on annual basis, whether it be in cash or stock options.

If you see that most or all of the executives whose compensation is disclosed are paid in cash, that's a sign that you want to avoid investing in that company. All-cash compensation indicates the executives aren't committed to the company's performance. If they were, they would own stock options that would become more valuable as the company's profitability grows over time.

A good principle to follow when looking at Executive Compensation is to only invest in a company whose executives are invested in it themselves. This means avoiding firms whose CEO and other leaders aren't paid in stock options.

While they're crucial to the penny stock research process, 10-K filings are usually up to 100 pages in length. That makes reading through them a time-consuming task for investors.

That's why Money Morning Small-Cap Specialist Sid Riggs prefers to do this research for you. He's recommended some of the best small-cap stocks to buy in 2017, with one of his recent picks handing our readers a 43.9% gain since April 19.

And today, he's giving you another stock pick. While this small-cap stock is a little more money than a typical penny stock, it's worth it, and it's poised to rally thanks to explosive growth in the Chinese auto industry.

Car sales in the world's second-largest economy have soared in recent years. They grew 45% from 2013 to 2016, beating the 12.45% and 22.9% growth rate in the United States and EU, respectively.

Here's one of the best small-cap stocks to buy right now...

One of the Top Penny Stocks in 2017 to Profit from China's Auto Market

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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. (NYSE: F) then-Vice President 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 32.3%, going from today's price of $37.80 to $50.01 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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