The vast majority of stock market gains in a year - 80%, in fact - happen after earnings announcements.
And with earnings season upon us again, our top penny stock to watch has the potential to shoot up more than 420%.
Penny stocks are attractive because they can deliver high returns from a modest investment. According to the U.S. Securities and Exchange Commission, a penny stock is defined as anything trading at $5 per share or less.
Another attractive thing about the top penny stocks is that they can soar pretty high on good news.
For example, Revolution Lighting Technologies Inc. (NASDAQ: RVLT), rose $0.17 on news that the company was to receive a listing extension from Nasdaq.
That represented a 64% gain for investors. Of course, that's nowhere close to the 420% we're expecting from our best penny stock, but it's also not something any investor would turn down.
There is a flipside to penny stock investing, however. It can be risky business - while a good penny stock can quadruple your money, a bad one can put you at a loss the same size.
So if you're going to buy these stocks, you should use caution and follow a few simple guidelines.
Here are a few tips to safeguard your investment dollars. Then we'll reveal our pick for one of the best penny stocks to buy now.
Read This Before Investing in Penny Stocks
Penny stocks are considered speculative investments, so you should approach them with caution.
Money Morning recommends that investors reduce their risk exposure by limiting investments in these stocks to about 2% of your overall portfolio.
Beyond this, you can avoid common pitfalls and scams by following a few simple rules.
First, stick to major exchanges like the Nasdaq and New York Stock Exchange (NYSE), since these have better oversight to prevent fraud.
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Next, you should research every penny stock thoroughly. This might sound like a chore, but it can help eliminate terrible picks and reveal the winners.
Money Morning uses its propriety VQScore™ system for this purpose. This system allows us to screen a large number of stocks and isolate the ones with the most potential.
Our top penny stock to watch this week has a perfect 4.75 VQScore, meaning it's a "Strong Buy" with breakout potential.
This is a natural gas company that could quadruple your investment dollars by capitalizing on the growth in the energy exploration sector.
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This Is the Top Penny Stock to Watch Now with 400% Potential
Encana Corp. (NYSE: ECA) is a Canadian oil and gas firm that was founded in 1971. Together with its subsidiaries, Encana is in the business of natural gas, natural gas liquids, and oil exploration, development, production, and sales.
It made the Forbes 2000 list last year and holds 1.9 million acres of land in the United States, as well as another 1.7 million in Canada. Its production capacity is extended thanks to its major holdings.
These interests are not only large but also geographically diverse. They include the Duvernay located in west-central Alberta and the Montney located in northeast British Columbia and northwest Alberta. Its upstream operations are composed of Deep Panuke offshore in Nova Scotia, Wheatland in southern Alberta, and Horn River in northeastern British Columbia.
In the United States, Encana has interests that include the Eagle Ford in south Texas and the Permian in west Texas.
The company primarily markets its services and products to refiners, energy marketing companies, local distributing companies, and electronic exchanges.
Last year alone, it had production levels equal to 1.158 billion cubic feet of natural gas and 89.9 thousand barrels per day of oil, making it one of the largest producers in North America.
These substantial interests and production levels have allowed Encana to serve the growing global demand for natural gas products.
In 2018, the consumption of natural gas rose by 4.8%, accounting for the strongest growth in eight years. Projections from the Energy Information Administration (EIA) are calling for 7% over the next several years, and this company will be there to meet the demand.
Encana's sales have soared 73% over the past three years, and its profits went up 29% last year alone.
Its Q2 results were recently released, and it was more good news. Earnings per share (EPS) were $0.21, beating the Zacks consensus estimate of $0.17. It reported $2.05 billion in revenue for the quarter. This not only beat estimates but is also more than double that of the $988 million reported last year.
Shares of ECA now trade at $4.01, which makes this a major penny stock to own. Even better, it's trading at about 6.25 earnings compared to 32.47 for the industry average. This means that it's severely undervalued.
Wall Street analysts have given this stock a price target of $21, which would give today's investor the potential for a stunning return of 423%.
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