Comparing Blue Chip and Penny Stocks IV
The effect of various influences in the stock price also differs with penny stocks and the more conventional stock. Blue chip corporations are susceptible to sector and industry influences but the price swings of the stocks are not as greatly affected as those of the penny stocks. One can say that though blue chip stocks are affected by consumer behavior, economy behavior and other influences, their stock prices remain stable and undergo only minor price fluctuations as compared to the price fluctuations of a penny stock. Penny stocks are more prone to dramatic price surges because they are intimately affected and connected with major market influences. For example, the share price of a blue chip pharmaceutical corporation, such as Pfizer, will not substantially drop if another corporation produces a cutting edge wonder drug, whereas the similar drug discovery may mean a drastic price decrease, if not a complete corporation shutdown, of the penny stocks. This only goes to show that though both penny and big stocks are affected by similar industry influences, penny stocks are more affected in terms of stock price swings than the big stocks.
Capital ownership, amount of resources, name recall, and strategic tie-ups with other major corporations are only a few of the disparities that large cap corporations have with small cap corporations. As may be guessed, major corporations, having matured and grown over the years, have accumulated a greater amount of capital, resources and sister companies than penny corporations. Their products and services are more known and favored by consumers that those of the penny corporations. That is why a penny corporation stands no chance in competing with the bigger corporations. Blue chip corporations have more connections and resources to go into a full market war against similar corporations offering the similar products. Penny stocks have none of these arsenals and hence, instead of taking the major corporations head-on, penny corporations must learn to find a niche market where they will offer a novel and one-of- a-kind product or service without having to endure major competitions. Not only will the small corporation be a pioneer in that product or service but also serve as a way for the small cap corporation to grow and for the share price of the penny stock to increase.
The forces that drive a penny stock price are largely different from those of the blue chip corporations. While a change in the corporation’s executive officers may have little or no effect in a blue chip corporation’s share price, the same change may cause a penny stock price to plummet or increase. Often, factors that seem insignificant for major corporations are crucial factors in determining a penny stock’s share price. That is why the true value of a penny stock is much harder to asses than that of the blue chip stock as often irrational factors and circumstances have a major effect on a penny stock’s price. Also, the share price of major corporations is significantly determined by their financial situation as reflected in their balance sheets. A penny stock’s price are determined not by their financial situation, as often their balance sheets don’t balance out, but by other factors.