Stocks selling in between $1 to $5 are called penny stocks. They are basically low-priced stocks, considered speculative. Another term for penny stock is the microcap or small cap stock. These were used for stocks that were priced less than one dollar. Larger companies such as General Motors or IBM will not be found in this section, though at one time, they had also started small in the share market. The well-seasoned investor may take up penny stock investing in the hope of locating the next Microsoft.  At Company Invest, we’re a bit skeptical about trading penny stocks though.  They are dangerous because institutional investors do not buy them, thus they are controlled by a small inner circle.  However, there are opportunities:  For example at Company Invest we have Liquidmetal Technologies in our portfolio (LQMT).  It is currently trading at .64 a share.  This startup company just sold licensing agreements to both Apple and Swatch and has paid all their debt.  Opportunities like this are uniqe.

It is not right to assume that since the price of stock is $1, it is not worthwhile to invest in the company. Many renowned companies that now trade in the NYSE and NASDAQ had once started out as penny stocks. Before taking any financial decisions, it is preferable to do as much homework and research as is possible, since this is also an investing venture like any other. Value of a stock lies very much in the eyes of the investor. Whether to invest or not, should not be decided by the stock price alone. The present price of a stock is never an indicator of the future performance of the company.

Blue chip companies, the behemoths like Blue Star, General Motors, and Ford Motor Company, may be considered for stock trading by investors, as the icing on the cake.   As a whole Company Invest recommends and analyzes stocks that are $5 and above. On the other hand, penny stocks would be considered more like biscuits. However, some biscuits can and do have a taste that lingers on long, in the minds and hearts of the consumer.

However, none of the sources such as Russell 2000, Wilshire 5000, the S&P 500 or the Dow Jones, cover the penny stocks, in the stock market today. If you are interested in investing in penny stocks, the best source of information would be your financial advisor or your broker. The Walker’s Manual of Penny stocks is another great resource, since it lists over 500 of them.

Instead of the NASDAQ or the NYSE, penny stock trade is limited to the Over-the-Counter market, generally known as the OTC. You can find them quoted on the OTC Bulletin Boards. Be careful and check out the financial condition of the company before you buy stocks. The financial statements will be available on the SEC website, provided the company is registered with SEC. Else; your state securities regulator should have the details.

As with any potential investment, the investor will need to look into the future prospects of the small company, in generating profits. The company even if small, having sound growth potential, could generate significant profits over time. Look for the company’s existing financial revenue stream, its solvency, stock news, profitability, current valuation, history and longevity, before taking the plunge.

The risks involved in investing in penny stocks are manifold. Lack of information is one of the biggest factors to be considered. The information available may also turn out to be erroneous. Since the companies are small, and do not file their reports with SEC, there are chances of fraud. These risks act as deterrents to investing in penny stocks.  Again, Company Invest cautions you against investing large amounts of capital into penny stocks.