Penny stocks are a controversial topic. While some swear that penny stocks are money-making spinners, many others have burnt their fingers dealing in them. Interestingly, although penny stocks are looked down by a majority of investors in the share market, historically, there have been a handful of penny stocks that turned out to be multi-bagger stocks, and today are blue-chip stocks.
To know more about the best penny stocks in the market, it is crucial to understand what it means. Penny stocks are defined as those stocks that trade in the online share trading account at a meagre price, ranging from Rs. 10 and as less as Re. 1.
In the US, a penny stock is defined as a stock trading below one dollar. Since penny stock companies have low market capitalisation, they also have extremely low liquidity and equally low trading volume. Such stocks do not come under regulations by large stock exchanges such as NSE, BSE or NASDAQ.
For instance, some of the large blue-chip companies that you hear of today such as Titan Company, Bajaj Finance, Kotak Mahindra Bank, JSW steel, UPL and others were penny stocks when they first started. However, having said that, in most cases, penny stocks are considered bad news. There are definitely a few good stocks for the picking, but it is vital to spot the right one to ensure you have a multi-bagger stock.
If you have set your eyes on one or more penny stock that you think will hit big, you can commence trading from a reputed stockbroker such as Kotak Securities through your trading and Demat account. It is important to note that since penny stocks are rarely traded, it can make buying or selling them very challenging. In some cases, penny stocks are bought and sold in bulk deals outside of the stock exchange.
To decide on a promising penny stock requires a good deal of research and analysis on why you anticipate that it could become a multi-bagger stock. It also calls for understanding the sector, reading company balances, expansion plans, and knowing about its management. Although it can be difficult to glean detailed information about penny stocks, it is strongly recommended to conduct in-depth research before investing in them. There have been instances in the past when stock exchanges delisted penny stocks due to the non-compliance of the stringent requirements of SEBI.
Penny stocks are known to show extremely price volatility in a single trading session. For instance, some penny stocks can jump up to 50% or even 100% in a given day. It can help to build the best strategy towards picking the best penny stocks. Some factors to consider when preparing a plan to pick penny stocks include:
- The intrinsic value of the penny stock
- The company’s business model
- Company’s performance
- The trading volume of the company
- The sector in which the company operates
- Company’s trustworthiness
If you are looking to invest in penny stocks, it is advisable not to invest a significant amount, but rather a minimal amount that you can afford to run a risk. Look out for penny stocks that have a substantial trading volume which can help sell your shares or offload them.