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Choosing the Right Penny Stocks III
Looking at the conditions of the sector in which your penny stock is in can also help you in determining if a possible share price increase or decrease is in the horizon. The increasing profitability and boom of an industry affects all the corporations that are engaged in that industry and this is good for you. The trick is to choose the right industry before the price increases start. For example, the great industry boom in computer technology benefited all of the corporations that are in the computer technology business as well as increased the share prices of the stocks of these corporations. Look at the possible future trends of the major commodities that are used or manufactured by an industry and determine how this affects your prospective company. Stay away from industries that are falling as it will probably drag all the corporations that are involved in it, no matter how great that particular company is doing.
Aside from examining the industry, you should also look at the shareholders of a corporation. It is a good sign if a corporation has venture capitalists, other companies or investment establishments that are shareholders in that company. This means that they are seeing something good in that company and are willing to invest a lot in it. It shows that your prospective company has a lot of potential for growth and profitability. Look for corporations that have these 'investors' that have owned shares for a long time or are increasing their shares. Avoid corporations where these major investors are selling their stocks as this may send the stock prices down.
Corporations and industries don't exist in a box, which is why they are affected by any major political shifts or societal changes. This is why any good investor must look at any major political shifts in policies as well as consumer tastes. For example, if the government suddenly declared a war on terror and doubled government spending on military equipment, then it would do you good to buy penny stocks from corporations that are involved in military equipment manufacturing. In the same manner, if the market fad of the moment is two wheeled cars then it is wise to buy penny stocks from corporations manufacturing two wheeled cars.
What the corporation is saying about themselves and what other companies are saying about them are also important. Beware, however, of penny stock corporations that create artificial hype for themselves in order to artificially increase a stock's price. Make sure that the news comes from reliable news sources such as major newspapers or magazines. Look for new projects entered into with major corporations. Have the corporation been cited or awarded by any organization? Are their products being used by popular people or featured in major dailies? Have the government issued any warnings against them or approved their products? These and other questions will help you in determining if a penny stock is worth buying and keeping. Stay away from corporations that have seldom or no media coverage as it would make their products and responsibility to their investors suspect.
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