Three Reasons To Love Foreign Penny Stocks

| August 16, 2011 | 0 Comments

Foreign Penny StocksI’m often asked why I like penny stocks so much.

It’s an easy question to answer.  Trading penny stocks is exciting, it’s challenging, and if you get it right, you can make a ton of money!

Who doesn’t love that kind of action?

Now, one of the secrets to investing in penny stocks is to have an open mind.  It’s a huge help if you can expand your horizons and find new, undiscovered investment opportunities.

Here’s the thing…

Many investors overlook international penny stocks.  They think they’re too risky, or not a good deal.  But that kind of thinking is just plain wrong.

Sometimes you can find even better deals overseas than you can here in the good old USA.  That’s why I like to spend a good deal of time looking overseas.  So here are my three good reasons why you should include international penny stocks in your research.

Reason One – Less Government Interference

One of the beauties of penny stocks is the companies are small.  That means they are nimble and can adjust to changing economic environments.  But one aspect of running a business can be a hindrance, and that’s excessive government intervention.

It seems to me, the US government is punishing small businesses every chance they get.  They’re creating new oversight agencies, laws, taxes, and restrictions.  All these things do is get in the way of a business’s growth.

In foreign countries, especially those with quickly emerging economies, regulation often is relaxed.  That gives business the freedom to expand and grow.  Most companies operating in emerging markets are not hampered by onerous government rules or bureaucrats.

But, let me be perfectly clear here.  This is a double-edged sword and it can cut both ways.

The same lack of government meddling can also expose investors to potential risk.  As an investor, you need to weigh the pros and cons.  And in my book, I believe the less government intervention there is, the better.

Now let’s move away from rules and regs and look at growth!

Reason Two – International Growth Rates Are Huge

Another reason I love foreign penny stocks is the huge growth opportunities right in front of them.  The United States is filled with opportunity… and it’s the largest market in the world.  But, the US is just not growing as quickly as other regions.  Right now, the US is lucky to see a 2% or 3% growth rate every year.

By looking overseas, you can find much more exciting numbers.

Take China for example.  They’re expected to grow by over 9% this year… that’s a growth rate 300% higher than the United States.  India too is seeing huge growth.  They’re expected to grow over 7% this year alone.

Companies who can expand their presence in these types of markets will see huge growth themselves.  And it doesn’t take a big multinational company to profit.  Even small players benefit with growth rates like these.

Remember, a rising tide lifts all boats. 

Not only are growth rates great, but valuations are cheap too…

Reason Three – International Penny Stocks Are Undervalued

It still blows my mind how undervalued some penny stocks can become.   Remember, Warren Buffet made his fortune buying undervalued companies.  And with penny stocks, there’s a huge opportunity for you to do the same.

I wanted to give you a good example… so I hopped on my computer and did a little research.

I dug up a bunch of penny stocks… companies with market caps under $300 million whose stock was trading under $10 a share.  Then I pulled data on all the companies with positive P/E ratios.  That’s all.  I didn’t screen for anything else.

I found several hundred companies, and when I looked a little more closely, the results were stunning.

Of the several hundred US based penny stocks, their average P/E ratio was just over 28.2x.  Then I looked at the same data, only this time I only looked at companies from China.

Believe it or not, their average P/E ratio was a ridiculously low 9.8x!

That means on a dollar for dollar basis, Chinese penny stocks were trading for about one-third the value of their American counterparts.

It doesn’t take a rocket scientist to see the huge potential there.

So, there you have it.

Three great reasons to invest in international penny stocks.  Remember to spread your wings and take a close look at some of these foreign firms.  Who knows, you might just find the next Google… or Microsoft!

Until next time,

Brian Walker

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Category: Investing in Penny Stocks, Penny Stock Tips

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.