That’s No Penny Stock!

| February 27, 2013 | 0 Comments

Penny Stocks To WatchEvery once in a while I get customers write in about various stocks that we write up here at Penny Stock Research.  And one of the more common issues that pop up is the price of a “penny stock”…

“There’s no way this is a penny stock- are you just stupid?”

I tend to grin as I hit the delete key with those emails (FYI- your editor here doesn’t respond to crude emails).

But recently I received an email from a subscriber with a great question about my “Hot Penny Stocks” article from a couple of weeks back…

Cidron M. wrote in –

“I noticed on your newsletter that you listed BDCO, CEP, FMFC as penny stocks and to my estimation that’s quite not so, as two BDCO & FMFC are above $5.00.  Do you evaluate stocks below that threshold for your ALL-STARS?”

First off, that’s a legitimate question, so thanks for asking.  I guess the best way to answer your question is to give everyone a better understanding of how we exactly define a penny stock.

Now before I get into specifics, understand there are a few ways to evaluate and classify a stock as a “penny stock”.  Many people tend to think of the literal translation, which is a very narrow range.

In this case, we could say a penny stock is a stock limited to just stocks that trade for under $1.  Now that’s a pretty literal translation, and one that not many folks adhere to.

Some professionals will look at any stock trading under $2.00 and consider it a penny stock.  And what I find interesting is that Cidron uses a sub-$5 threshold to define a penny stock – so do you see how this can get a bit confusing?

All these definitions use a price as a defining tool.

However, what many professionals use to define penny stocks is a company’s market cap. 

When we use market cap to define penny stocks, we look at what’s known as “microcap” stocks.  Micro caps are stocks with a market cap under $300 million.  By using market cap to define penny stocks, we now have a HUGE selection of stocks to choose from.

Looking at the two stocks you picked out in this case, BDCO and FMFC, we can easily drop them into the realm of microcap stocks.  BDCO, for example, has a $19 million market cap, and just 2.1 million outstanding shares.

FMFC has a market cap of $125 million, with just 9.2 million shares outstanding.

Now, Cidron also asked if I evaluate stocks below the $5 threshold for my Penny Stock All-Stars newsletter- and the answer is a resounding YES!

At this time, our portfolio is holding 11 stocks trading under $5 each- including some trading under $2 and $3. 

To learn more about Penny Stock All-Stars, click here to see what it’s all about.

Hopefully that answered your question Cidron, and to everyone else with questions (real ones) – please feel free to send them in!

I’m happy to answer questions that will make you more intelligent investors.

***Editors Note***  Want to get your hands on over $1,000 in research for free?  The ETF Inner Circle is offering a library of research just for joining.  The best part is, it doesn’t cost an arm and a leg.  Discover all the details about this special offer here.

Until next time,

Brian Walker

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Category: Investing in Penny Stocks

About the Author ()

Brian joins the Penny Stock Research team as a seasoned independent trader and financial analyst. Brian graduated with a B.S. from the University of North Florida and now resides in Scottsdale, Arizona. With a background in economics and statistics, he has a keen ability to uncover profitable and growth-focused companies. He has years of real life know-how in analyzing fundamental and technical data that gives him an edge drilling down on companies and financial results. With over 15 years trading experience, Brian has become an expert in the ever-changing equities markets. Today, he scours the markets hunting for penny stocks that offer low risk and high reward.