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Fundamental Strength - Fundamentals involve such criteria as earnings, debt load, assets, and many others. It was long thought that earnings were
major driving force behind share prices, but Modern Strategies Inc. has since disproved this theory as it applies to penny stock companies. Instead, uncovering best medium to long term investment opportunities must be done through exhaustive analysis of company financial statements. Investors should get involved with companies that are making most money, have most effective management, and have improving trends in all factors of their operations. As well, industry comparisons and examination of key financial ratios present clues as to which companies are destined for higher share prices.
Proper fundamental analysis of penny stock companies will generally reveal that there are about 2 or 3 superior investment opportunities out of every 100 companies examined. These 2 or 3 excellent corporations often represent better investments than 90% of stocks on large-cap markets like NYSE.
Undervalued Situations - Sometimes companies see their share price slide dramatically. There are occasions where this decrease in price has very little to do with underlying fundamentals, and more to do with factors such as overall market weakness, interest rate increases, or others.
Opportunity exists in such situations because shares are often 'unfairly valued' and a return to more realistic prices is inevitable. There are often cases where companies have more cash on hand per share than their share price, or have price to earnings ratios as low as 5.0. Although there is much more to uncovering best undervalued situations, this is basis behind concept.
Minimized Downside - Often combination of technical analysis and undervalued situations can reveal penny stock companies that have tremendous upside potential, and have a very low probability of declining in value to any significant degree.
These type of investments are excellent choices for penny stock investors that are less risk adverse.
Special Notes About Penny Stock Companies
Penny stock companies change their names more commonly than other publicly traded companies, and are also subject to more stock-swaps and consolidations. In any of these events, your shares in your account will be automatically replaced with appropriate stock by your broker and notice will be delivered to you.
For example, if you owned 5000 shares of EXO and for every 5 shares you were to receive 2 shares of LOR, you would find your account holdings re-adjusted to reflect 2000 LOR which can be traded as normal. You will no longer have 5000 EXO.
On rare occasions, a penny stock company can become delisted. This means that shares will no longer trade on exchange, and if company does not get listed on another exchange or re-instated at a future date, you may be subject to a loss of capital equal to 100% of total investment. However, this is a very rare occurrence, and there are simple ways to protect yourself against it which are periodically discussed in Modern Strategies Inc. publications. Delisting generally becomes a greater concern for investors who intend to use a long-term (several years) buy and hold strategy with penny stocks.
Peter Leeds, one of North America's leading Investment Coaches, is a self-made millionaire who has created his fortunes on the stock markets. He has also empowered thousands of individuals to do the same. His personal success and incredible ability to consistently pick money-making stocks has earned him a loyal following of successful investors and has generated significant attention from the financial world.
