5 Types of Penny Stock to Buy - By: Peter Leeds

As always with penny stock investing, the first step is to protect yourself from the dangerous investments. Once you've done your due diligence to avoid the duds and scams, you'll have a pretty good chance of finding some high quality companies that are trading for low prices. However, there are thousands. What should you look for among the crowd? The following five pointers will help you identify the types of penny stock investments that should appeal to you.

Intellectual Property Strength:

On their own, strong patents are not nearly enough to make a penny stock company investment worthy. There are, however, a major piece of the puzzle.

There will always be dozens of larger companies looking to steal from or squash your favorite penny stock, and a rock-solid patent is the only thing that can level the playing field for the little guy.

In addition, it's often the case that the intellectual property is more valuable than the penny stocks' overall market capitalization, so it becomes a very valuable asset that holds the share price up, and potentially turns into a royalty-based or one time payment windfall upon sale.

Penny Stocks as Effective Hedges:

If you are buying a penny stock as a hedge against other investments you've made, it could be a great strategy. For example, you are over-weighted with airline and transportation companies (which suffer from high fuel prices), so you invest in several oil production penny stocks (which benefit from high fuel prices).

Penny stocks are great as hedging tools, since their small market caps mean they really increase in price in the event that your hedge plays out.

Strong Fundamentals:

You've heard this from us before at Peter Leeds, over and over again. Just because it's a penny stock doesn't mean it can't have rock solid fundamentals. This means low debt, increasing revenues, major contracts, share buy backs, and assets covering liabilities several times over.

For a greater understanding of what to look for, read up on Leeds Analysis, which is specifically designed for the penny stock markets.

A Business You Know:

Invest in what you understand. Some highly complicated biotech company may sound great, but you don't really know what you're reading in their annual reports, do you? If you're in the industry, then great, you've got an advantage. However, if you're new to all of the operations of a penny stock you want to invest in, remember that you will be at a significant disadvantage to many others in the field.

A Penny Stock Company You Can Believe In:

While you should never get 'married' to any investment, it is rewarding to be involved in penny stocks that trigger your passions. If their operations help people, or their business model reflects your own personal values, then you'll watch that investment very closely.

In the long run, ethical penny stocks don't statistically outperform. However, being ethical doesn't act as a detriment either, so you may as well back some of these up-and-coming corporations that have some meaning behind what they do, especially if the four other points above apply to them.

Keeping these five points in mind, you should increase your odds of success, and the overall quality of your penny stock investments.

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Penny Stock Investing with Peter Leeds.

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