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Most successful penny stock traders don’t think of the stocks as long-term investments and are more focused on timing short or medium-term entry and exit points to turn a profit.Ī long-term study of more than 10,000 over-the-counter (OTC) securities, most of which are penny stocks, found these stocks generate an average annual return of -27%. They are extremely volatile, making it easy for investors to lose a large amount of money in a short amount of time. In addition, many penny stocks have low trading liquidity. While there are always some hidden gems among penny stocks, most stocks trading under $5, particularly those trading under a dollar, are cheap for a good reason. Most penny stocks are not considered good long-term investments. But it can also be an emotionally and financially rewarding experience for successful penny stock investors. It can be difficult to hunt down a handful of high-quality stocks among the thousands of low-quality penny stocks in the market. Penny stock investors can reduce their overall risk by diversifying their portfolios rather than picking just one stock and going all-in. But top-performing penny stocks can generate tremendous long-term returns for speculators with high risk tolerances. Investing in penny stocks is not for the faint of heart and comes with sizable financial risk. In addition to low share prices, the stocks on this list have underlying businesses that are profitable and/or growing and valuations that indicate significant potential share price upside from current levels. According to Daniel Milan, founder and managing partner at Cornerstone Financial Services, investors should focus on value and business fundamentals, not share prices. That said, the price of stocks should not be the sole determining factor for investors. We also didn’t consider stocks that exceeded $5 per share.

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At least one “buy” rating by a Wall Street analyst is a vote of confidence from a professional stock picker.įor penny stocks, we didn’t consider companies with market caps of less than $250 million, because of their risky nature. A strong number of analyst “buy” ratings indicates an expectation the stock will outperform the overall market. Consensus analyst recommendation of “buy” or better.Stocks with market caps above $250 million are more likely to have analyst and media coverage and plenty of trading liquidity. Stocks with market caps below $250 million are considered microcap or nanocap stocks, and these stocks are often among the most volatile and risky stocks listed on major exchanges. Market capitalization of at least $250 million.Penny stocks are inherently risky investments, but screening for stocks with the lowest financial risk helps reduce the chances of significant downside. The Altimeter risk grade is calculated based on a company’s credit rating, management sentiment and a fundamental forensic assessment of its financial health. Grades of B or higher for both are stocks that are ranked in the top quarter of nearly 5,000 stocks in Altimeter’s stock database, which indicates that these companies have strong valuations with the ability to improve returns. The overall grade takes into account profitability, earning stability, valuation and earning expectations. stock exchange and meet the following criteria: The best penny stocks included above all trade on a major U.S. We screened for stocks with share prices under $5 that had a strong earning potential, market capitalizations greater than $250 million and a “buy” consensus among analysts. If you’re willing to stomach the risk and ride out the volatility, here are six of the best penny stocks with significant upside potential and bullish ratings from Wall Street analysts. On the flip side, there are a handful of hidden gems among the thousands of subpar penny stocks. Many of these companies have challenged business models, heavy debt loads, shrinking market shares and/or difficult near-term outlooks, to name a few problematic areas. These stocks are likely cheap for a good reason. In reality, stocks that trade for less than $5 are typically among the highest-risk investments in the market. The idea of stumbling upon an under-the-radar, cheap stock that you can buy for pocket change and will grow into the next Fortune 500 company is certainly exciting. Penny stocks may seem like the best investment to make if you’re looking for huge potential upside.

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