Penny Stocks To Watch

Investing in penny stocks can seem like a great way to make a large amount of money. But, a proper understanding of investing can mean the difference between making and losing that money. First of all, what is a penny stock? A penny stock is a share of a company that is valued at one cent.

A stock can be valued at one cent for at least two reasons. The first is that the company is incredibly small, and the initial public offering (IPO) is simply as low as the owner could make it. The second reason a stock might be one penny is that it used to be higher, but has dropped to almost zero. When determining which penny stocks to watch, it’s important to focus on new, small companies.

The usual plan for investing in penny stocks is the same as for any other stocks: buy low; sell high. One might think that because penny stocks are the lowest possible amount, they can only increase in value. This is true if the company makes a profit. It’s not true if the company goes under. Since many penny stocks are new companies, the possibility of going out of business is more prominent than for more expensive, but better established companies.

But with the risk comes the possibility for great return. Because the best penny stocks to watch in 2012 are shares of such new companies, if the company grows the growth is often astronomical. Penny stocks that appreciate often do so at much greater percentages than the average stock in the market.