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From Money Morning, your daily guide to profitable investing.
Penny stocks have a history of high risk, fraud, and scams. Penny stocks are notorious for pump-and-dump schemes, where a single buyer will drive the price up, only to sell again immediately. Moves like these scare investors away for good reason.
So why would an investor consider buying penny stocks?
Among a sea of failed companies are excellent investments. These are legitimate companies that trade at low prices now, but will grow. And these healthy investments could easily double your money or more in just weeks or months.
The trick for finding companies like these is knowing what is hype and what is an actual strong company.
Make sure that the companies are listed on major exchanges, where good regulation will protect you from some of the risk. Avoid companies that use pink sheets to trade. Over the counter stocks have some protections, but nearly as many as a major exchange.
Look for companies that operate in unique growing markets or are facing big catalysts that could bring in revenue. Find companies that have consistently growing sales and profits. That can say a lot about the products, the leadership, and the demand.
One example is Southwestern Energy, which grew its revenue by 59% over the last three years. On top of that, its net income grew by 102%. The natural gas company is riding the wave of natural gas in the United States, a growing market. The stock trades around two dollars a share.
Penny stocks are always risky, and you should never invest more money than you are willing to lose. The right investments can be a huge addition to your portfolio, paying for vacations or building your retirement.
Head to moneymorning.com to get weekly penny stock recommendations for free. We save you time by doing the research for you and letting you start investing profitably today.