How to Find the Best Penny Stocks

Penny stocks have a reputation for being the fast-track to both amazing returns and staggering losses.  Unlike relatively stable blue chip stocks, penny stocks are extremely volatile, and can rise and fall considerably in as little as one trading day.  Even in light of this volatility, many investors are drawn to penny stocks due to the promise of instant wealth and unbelievable returns.

When investing in penny stocks, you must be prepared to do a considerable amount of research and monitoring of your position.  You must also be prepared to act quickly if your position moves against you.  That is why it is particularly important to have a plan in place prior to investing, especially an exit strategy.

If you are wondering how to find the best penny stocks, a good place to start is a free stock screener.  A stock screener will allow you to search for penny stocks using a variety of criteria including share price, and market capitalization.  This is a good place to start your search in order to narrow down the list of potential investments.

There are many free stock screeners out there, one of my favorites is the google stock screener.

When searching for penny stocks, you need to set the stock screener to search for stocks priced less than $5. This is the SEC definition of penny stocks.

How To Find Penny Stocks: Do Your Homework

When looking at penny stocks, you should still do extensive research on them before buying. Just because a particular stock is cheap at present, doesn’t in any way mean it is a bargain. Some stocks are cheap for a reason. For example if a company is likely to go bankrupt in the near future, it may be a penny stock, but it wouldn’t be one you would want to own.

Whether you are a technical trader, a fundamental trader or a combination of the two, your methods and strategies should still be applied to trading  penny stocks.

Penny stocks do have a tendency to be extremely volatile, quick gains and losses can often occur. Many penny stocks do end up worthless.

Despite all this doom and gloom in regards to penny stocks, some cheap stocks do ultimately thrive and have the potential to produce very large gains in the short to medium term.

Top Performing Penny Stocks

There are some crazy penny stocks that make huge returns, the top performing penny stocks are shown in the table below:

ATSG Air Transport Services Group, Incorporated 1438.90% $2.77
VVTV ValueVision Media, Incorporated 1230.30% $4.39
PIR Pier 1 Imports, Inc. 1183.80% $4.75
KERX Keryx Biopharmaceuticals, Incorporated 1171.00% $2.80
ROIAK Radio One, Inc Cl D 1118.20% $2.68
UEC Uranium Energy Corporation 1054.50% $3.58
BIOF BioFuel Energy Corporation 940.00% $3.64
OPXA Opexa Therapeutics, Incorporated 921.10% $1.94
VOCL VocalTec Communications Limited 805.60% $1.63
LEE Lee Enterprises, Incorporated 763.40% $3.54
SBSA Spanish Broadcasting System, Incorporated 745.40% $0.82

There were many good penny stocks in 2009, but as you can see the Air Transport Services Group (ATSG) stock performed exceptionally well in 2009 making a staggering 1438.9%, wow. $1,000 invested at the beginning of 2009 would have been worth over $14,000 by the end of the year!

Where can I purchase penny stocks?

The stock broker you choose can also have a significant effect on your penny stock trading. It is important to take your brokerages fees and commissions into consideration when devising a strategy for investing in penny stocks.  As trading penny stocks requires you to make frequent trades, these fees and commissions will quickly add up and eat away at your returns.

Many brokers don’t like penny stock traders and charge them outrageous trading costs to deter them. Fortunately, there are some good brokers. More information about them can be found on my penny stock brokers page.