Start the conversation
Comment on This Story
Or to contact Money Morning Customer Service, click here.
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.
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.
10-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.
The Best Pot Stocks: After months of research, we've found the most lucrative and fastest-growing legal pot stocks in America. And for a limited time, you can get all the details for free. Learn more…
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…