5 reasons to invest in Penny Stocks
What are Penny Stocks?
A penny stock is simply a stock or a company that has listed on the stock market that typically trades for less than $5 a share. But penny stocks can also trade on the ASX for as little as a few cents (or to be old fashioned, penny’s).
Investors need quality Stock Research when investing in Penny Stocks
It’s very important to be careful and to invest wisely and to get quality stock research. A good benchmark is to look at the market cap or the value of the company as a whole. The bigger the market cap the bigger the company. Don’t buy a ‘penny stock’ just because you are buying it for a penny. It’s not a gamble you are making an investment in a company.
Penny Stocks are renowned for their high risk profile. You often read about penny stocks that offer huge, unbelievable returns or that people crash out and lose money. So is this true? It is if you don’t do your research and if you really are only buying penny stocks that have a very low market cap and really are only a few cents.
How to find 100 Penny Stock Under $5
It’s very hard to know which penny stocks to invest in. But all 100 of Under the Radar Report’s current recommendation of stocks were under $5 when we first recommended them. But they are not all penny stocks now! That is the point of penny stocks is that they offer real growth potential to really boost your portfolios return.
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30% average return for all our 100 Penny Stocks
Under the Radar Report has been recommending small cap stocks on the ASX (or penny stocks) for over eight years. Our average return for all our penny stocks is over 30% for the 100 stocks we cover.
We only recommend a penny stock that has a market cap of over $50million. But as we said, all our small cap stocks that we have covered, or penny stocks to use a different phrase, were under $5 when we recommended them but they are not that now!
So, what are the top 5 reasons to invest in Penny Stocks?
1. Penny Stocks offer growth and a strong investment return
When a company is small it is much easier for it to grow fast and to double, triple, quadruple or indeed become a 10 bagger because it is still small and starting from a low base. This means for investors that your investment can double, triple, quadruple or much more easily from a penny stock than from a blue chip stock.
Growth is rare and hard to achieve in developed economies, which is why penny stocks can offer investors real growth.
2. Penny Stocks are cheap and more affordable
An obvious benefit is that you don’t have to put much money in to start with or you can buy a significant holding with much less capital than you would have to for an expensive blue chip stock. Remember that investors need to take care with their portfolio when investing in penny stocks and that diversification is key and to know your own risk profile.
3. Penny stocks give you diversification
Following on from penny stocks being cheap, you can really diversify your portfolio across a number of different penny stocks to make sure you have a diversified portfolio. This really means you are spreading your risk so that you don’t hold all your money in just one penny stock. Smart investors really do diversify across a number of different penny stocks.
4. Penny Stocks give your portfolio the boost that it needs
If you park your money in the bank, or just invest in blue chip stocks for their dividend yield your capital will remain stagnant and will not grow. Investors need to consider investing a percentage of their portfolio into a number of penny stocks so their portfolio has the opportunity to really grow.
5. Penny Stocks allow you to invest in niche industries
Another great (and really interesting) thing that investing in penny stocks does, is that it allows investors to get to know small companies, often in niche industries that have cutting edge technology, or are a medtech stock developing new and exciting drugs. You may be interested in exposure to Chinese markets and you find a penny stock doing just that, so you take that opportunity to invest there. Or you may find you are interested in lithium or in medical marijuana.
Subscribers at Under the Radar Report often give feedback that they learn about companies that they didn’t know existed that are punching above their weight and delivering exciting and interesting business models. It’s why over 8 of our Small Cap stocks (nearly 1 in 10) have already been taken over in 2019 giving subscribers a real boost to their portfolio’s returns.
Click here for our latest stock recommendations.