Penny Stocks for Beginners
Penny stocks are often seen as one of the best methods to turn a large profit on the market. The low barrier to entry combined with the usually small market caps allows for massive swings that larger companies simply can’t hope to match. But with that promise of riches comes risk.
Novice investors need to understand how to play the market and identify the good stocks from the bad ones. Penny stocks for newcomers can be enticing, but before you leap in, check out this penny stocks for beginners guide that I’ve assembled here, along with three great technology penny stocks that have great potential for gains in 2017.
Before we continue on, let’s define penny stocks. “Penny stock” is usually used to describe a smaller or up-and-coming company with a low market cap and cheap shares—usually priced under $10.00. That doesn’t make every company under $10.00 a share a penny stock necessarily, but virtually every penny stock is under $10.00.
So why invest in penny stocks? Because of the potential.
Penny stocks allow you to buy up a lot of shares of a single company or multiple companies without breaking the bank. Consider that Amazon.com, Inc. (NASDAQ:AMZN) is priced at $950.00 a share. That’s an expensive buy, and you only get a single share out of it.
When it comes to trading penny stocks, however, your $1,000 investment will net you far more than a single share, giving you the flexibility to trade or adjust your stake in a company rather than a binary choice. On top of that, while Amazon is a stable company, when it comes to penny stocks for beginners, you need to remember that penny stocks have the potential to skyrocket like few other companies on the market can.
Amazon, for instance, is having a great year. The company is up nearly 27% since the beginning of 2017. Any investor would be happy with those results.
But compare that to Critical Elements COM NPV (OTCMKTS:CRECF), which has seen an increase of over 247% since the beginning of the year. Critical Elements is one of my picks for the best penny stocks for beginners (which we’ll touch on later in this piece), but you can clearly see why someone might be so hot on their penny stocks investment.
Now does that mean every penny stock is a winner? Of course not. If any industry had guaranteed hundreds of percentages of returns, there’d be a lot more millionaire investors running around right now.
Penny stocks, by their nature, are volatile. They often don’t have staying power due to a low market cap, so they can evaporate rather quickly. They are subject to being played by day traders and others who may look to manipulate the price for their own gain. And of course, the companies that are valued at such low numbers are there for a reason. Whether it’s because they’re unproven or in a recovery phase doesn’t matter. Either way, penny stocks are not perfect.
But as a novice investor, it’s important to know that there are few places on the market that can yield such high value as penny stocks.
Technology Penny Stocks for Beginners
With all that said, let’s take a look at two of my favorite technology penny stocks available on the stock market today, and then turn to a third option that may be enticing for those looking to invest in penny stocks.
|Company Name||Ticker||Market Cap|
|Critical Elements COM NPV||OTCMKTS:CRECF||195.28M|
|Glu Mobile Inc.||NASDAQ:GLUU||510.51M|
Chart courtesy of StockCharts.com
Critical Elements COM NPV
Let’s start off with the company I first mentioned, and one that has demonstrated tremendous gains in the past year.
Critical Elements is a mining company with a specific focus on lithium. What accounts for the surge in price? Power.
You see, lithium-ion batteries are becoming all the rage these days. That’s largely fueled by the auto industry moving towards electric vehicles. Electric vehicles use lithium-ion batteries to power them. Lithium-ion batteries are made with—you guessed it—lithium. See where I’m going with this?
The price of lithium is rising fast and mining companies that can capitalize on the demand for lithium are seeing their shares climb faster than the newest Tesla Inc (NASDAQ: TSLA) sports car.
Glu Mobile Inc.
Chart courtesy of StockCharts.com
Glu Mobile Inc. (NASDAQ:GLUU) is another exciting opportunity. It’s one of my favorite penny stocks for beginners because it’s shown tremendous growth in the past year while being situated in a space that is on the rise.
Glu Mobile, a game development company for mobile platforms, is in the right place at the right time.
The gaming industry is growing fast. Newzoo‘s “Global Games Market Report” shows that 2.2 billion people across the world are gamers. These billions of people are expected to generate about $108.9 billion in game revenues in 2017. This shakes out to be a roughly 7.8% increase from the year before. (Source: “The Global Games Market Will Reach $108.9 Billion in 2017 With Mobile Taking 42%,” Newzoo, April 20, 2017.)
And the cherry on the cake? Mobile gaming has grown the most, seeing a 19% increase in revenue year-over-year to $46.1 billion, and accounting for 42% of the market. In 2020, mobile gaming will account for more than half of the total games market.
This means that GLUU stock is well-positioned to see big gains over the next few years. It’s already gained about 90% in 2017 alone.
I’m hesitant to include this on the list because this is a penny stocks for beginners guide, but I’d be remiss to not at least touch upon what has been the hottest market in the world in 2017.
Cryptocurrencies are basically digital dollars that are being phased in across the world. Some are seeing more integration than others, with Bitcoin (BTC) leading the way. But of course, BTC is no penny stock, with each coin being valued over $4,000 at this point.
But there are now a variety of other coins, many of them valued well under a dollar, that could entice investors, especially novice investors. But be wary of two things when it comes to cryptocurrencies:
- There’s a ton of money to be made.
- They are extremely speculative.
You can see your earnings shoot up by thousands of percentage points in a few short weeks only to see it all wiped out just as fast. It’s an extremely lucrative and risky market, and should be approached only with that understanding. But if you feel you have a handle on the market, then you stand to make some big-time gains.
How to Invest in Penny Stocks for Beginners
Now that we’ve identified what a penny stock is and some of the better technology penny stocks on the market in my opinion, what are some final tips and tricks for penny stocks investment?
The first thing you have to always remember when you invest in penny stocks—and any other investment, for that matter—is to do your research. If the company looks sketchy, avoid it. If there’s too much baggage and that’s why it’s a penny stock, it might be best to steer clear. Does the company promise too much without delivering? Take a closer look.
Being aware of what you’re investing in is always a sound strategy, and it’s never more important than when you’re playing around with smaller companies that can fold up just as quickly as they can net you hundreds of percentage-point gains.
Another thing to know is to be steadfast. Getting rattled in the penny stock market is a recipe for disaster. Penny stocks for beginners should be investments with long-term forecasts of success, not quick buys and sells. Leave the daily stress to the day-trading junkies. For novice investors, finding good, solid companies and holding on to them for a while is the best way to invest.
With all that out of the way, you’re ready to start trading penny stocks. Penny stocks for newcomers can seem daunting, but remember that even one great penny stock can redeem many questionable trades.