Finding the Best Penny Stocks to Buy Just Got Easier with This 1 Tip

If you're looking for the best penny stocks to buy, you'll want to make sure to do plenty of research into these tiny companies. And today, we'll show you one easy way to figure out if a penny stock is worth your investment.

The 3 Best Strategies for Trading Penny Stocks Today

Penny stock investing is popular because you could rake in triple-digit returns in a short amount of time. A recent example is Daré Bioscience Inc. (Nasdaq: DARE), whose stock price climbed from $4.44 to $11.30 in just one week between June 30 and July 5. That's a 154.5% gain for any investor who bought and sold the stock in that period.

Unfortunately, sometimes those massive gains are the result of dishonest activity on the company's part. One example of this is Cynk Technology Corp. (OTCMKTS: CYNK) stock, which surged 24,900% in 2014, from $0.06 to $15.

The U.S. Securities and Exchange Commission (SEC) decided to take a look at the company and determined that it was nothing more than an illegal pump-and-dump scheme. A California stock promoter named Gregg Mulholland ended up with a 12-year jail sentence for his role in the scam.

Despite these examples, you can still safely make money off penny stocks in 2017. And one of the easiest ways to do that is to follow this one tip...

1 Easy Way to Find the Best Penny Stocks to Buy in 2017

Digging through a company's 10-K report is the best way to make sure it's worth your investment.

marijuana penny stock gainers10-K documents are filed with the SEC every year, and they provide every detail of the firm's business and financial performance. The most important sections for investors conducting research include outstanding shares, debt, and revenue. You can think of a 10-K as a comprehensive report card on the firm's entire business over the course of a fiscal year.

But the most important section to examine for penny stock research is the "Executive Compensation" section under part III. This provides info on how a company's CEO and other top leaders are paid, typically either in stock options or regular cash.

When a company pays its executives in straight cash, it's worth being cautious. This is a red flag for investors, because it indicates the heads of the company aren't tied to its growth or profitability.

A strong rule of thumb we stick to here at Money Morning is to only buy shares of a company whose executives also own shares. Because they are paid in stock options that would increase in value over time as the firm's business grows, they have an incentive to help grow the company. Always be skeptical of firms whose CEO isn't compensated in options.

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Money Morning Small-Cap Specialist Sid Riggs understands that looking through the 10-Ks and Executive Compensation sections can be a difficult task. These filings can be up to 100 pages long and are often written in dense accounting language.

That's why Sid - whose recent April 19 pick has given our readers a 41.4% return - does the research for you and finds the best small-cap companies to invest in. Most of his picks are exposed to high-growth industries, ranging from solar to cybersecurity.

Today, he's recommending another company exposed to one of the fastest-growing markets in the world: the Chinese auto market.

As the second-largest economy in the world, China is seeing immense growth in car sales. Sales increased 45% between 2013 and 2016, compared to U.S. and EU sales growing 12.5% and 22.9%, respectively.

Check out Sid's newest recommendation here...

One of the Best Small-Cap Stocks to Buy 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. (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., 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 44.9%, going from today's price of $34.49 to $49.96 by August 2018. However, Sid believes it could post much bigger returns than that. As China's auto market continues its impressive growth, Bitauto's transaction business will expand 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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