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Buying The Right Penny Stocks. Researching Before You Buy

A good penny stock is one that has either the potential to increase in price or offers a consistent dividend income. This is the same for penny stocks or regular stocks. There are several ways the average person can gauge this information about a stock. First and foremost, check its history. What has the price done in the last year? The last five-ten years? Many stocks show a large price hike in their initial years, and then a large drop. The important thing to ascertain is: has the price remained stable? If it offers a dividend, then its stability over several years is a good sign.

In order to determine if a stock is a dividend producing stock, check its statistics. Every stock buying website has their statistics set up in their own way, but they will all have a dividend yield percentage. If the dividend percentage is 0.0% then this stock does not yield dividends. Also, the search engine on each website should have the option to sort by dividend stocks. It is important to pay attention to the math when seeking this type of stock: A seventy percent dividend yield may seem great. However, fifty percent of a $5.00 stock is $2.50 and seventy percent of $3.00 stock is $2.10 so clearly the stock price hugely impacts dividend yield.

Other ways you can determine how a stock might do is to research the company itself. Read any articles you can find about the company in the news. Read the bio of the company on online. A tip here is that if you find during your research a company is about to release a new product into the market or hopes to within the next year, then it has the possibility of a stock price increase.

Financial statements and price to earnings ratios are also available online and should be taken a look at. Granted, information with penny stocks can be really difficult to come by, but if its available, read it! Compare the stocks to other stocks of the same type, looking in particular for red flags like a bunch of debt. Also, the price to earnings (P-E) ratio may indicate an important difference as well. A stock with a P-E ratio higher than other stocks in the same market most likely will drop before long.

Another technique which may be helpful is to track a stock of interest prior to purchasing. Setting up alerts on any articles related to the company will keep you informed on the stability or the potential of their stock. Does the price stay stable over a period of time, or is it jumping significantly from day to day, week to week? If a stable stock which gradually increases in value over time is the goal, then stick with those that don’t jump in price. That’s not always the case in the penny stock world, from what I’ve heard, but I’m going to keep that in the back of my mind.

Use the tools available online to gain as much information as possible. Taking extra time to research before buying can make a great difference in the success of penny stock purchasing. Although information can be scarce, trying to find good penny stocks seems to involve choosing those with as much stability and least debt as possible and paying close attention to dividend yield, stock price, and the history of the company I’m investing in.