Friday, March 23, 2007

Penny Stocks - The Good, The Bad and The Ugly

By S Sokol

Penny Stocks – The Good, The Bad, The Ugly

Penny stocks, in the most common terminology, are any stocks trading for less than $5.00 per share. While the official Securities and Exchange Commission definition of a penny stock is a low-priced, speculative security of a small company regardless of market capitalization or whether it trades on an exchange or an “over the counter” listing service, such as the OTCBB or Pink Sheets.

Penny stocks generally have small market caps, under $500 million and are considered more speculative than larger, widely held stocks. In most cases, that’s true.

However, penny stocks have huge potential. That’s both the good and the bad. For instance, our website (http://falconstocks.com) profiled Phazar Corporation (ANTP) when the stock closed at $5.00 per share. Less than two months later, it traded as high as $53.96 for a potential gain of over 975%. That’s the good. But for every stock that posts huge gains like this one, there are countless others that go nowhere or lose most if not all of their value. That’s the bad and the ugly.

We love penny stocks. Penny stocks are our business. The world of penny stocks is full of exciting small companies that are working hard to become the next Microsoft. It’s also full of hypesters, scammers and cheats. The trick is to find those stocks that aren’t the fly-by-night companies or the over-hyped shell that will only make the owners rich while leaving you holding the bag.

There are plenty of stocks out there that are truly good, growing companies that post a profit, but happen to have a low stock price. Some penny stocks were previous high-flyers. Gateway, Inc. (GTW) for instance, traded above $80 per share in 1999 but now trades just above $2. It seems improbable that Gateway could ever reach $80 again, but it could reach $4 or $6 if it can get its act together and make some headway. That would be a 100% or 200% gain. A gain like that would make holders of Wal-Mart envious as its stock is down from 2000, a full seven years ago, while the company was growing. Could Wal-Mart gain 100% or 200%? It’s possible, but it would take an enormous effort, like moving a mountain. Not so with smaller companies. In many cases it takes nothing more than good news, a switch to profitability or a new product to see these small companies post huge gains.

Everybody loves penny stocks, even if they don’t invest in them. We typed “penny stocks” into Google and it came out with 1,850,000 hits. That’s almost twice as many hits as we found typing in “blue-chip stocks”. Face it, the world of penny stocks is exciting, the world of blue-chips is, well, boring. Its amusing to us when the big news of the day is when a Microsoft or IBM moves 2% in a day. Yawn.

Our team looks for small companies with share prices under $5 that have a clean balance sheet, growing revenues and income, experienced management and a promising business outlook. Then we perform an extensive technical analysis to the basket of companies that we like and we pick the one that is acting the best that week. We post that stock for our readers every Tuesday before the market opens.

We’d like to invite everyone to stop by our site and see what we have to offer. While we do more than just penny stocks, that’s our main focus and our true love.
Visit us at http://falconstocks.com