Penny stocks: what are they & how to find potential penny stocks

Isn’t it amazing to invest in stocks which trade below Rs 20-25, you might think to buy these stocks as its trade price are low? But do you know what are these stocks, whether to invest in these stocks, how to start investing in these stocks?

The stocks which are traded below Rs 20 or 25 are called penny stocks. They have a very low market capitalization of under 500 crores. These stocks belong to the micro-cap category These stocks attract beginners and urge them to invest in it, this may lead to losses. Penny stock prices are small in number, enough research not done investors may end up making losses.

Some traders are drawn to penny stocks because their low prices mean they can buy a lot of shares and profit from small changes in the stock price. However high volatility and frequent fraud make investing in penny stocks very risky.

These stocks are speculative in nature and are highly risky. these stocks are considered risky due to the lack of information available.

These stocks can easily be manipulated by a pump and dump scheme. Many of the penny stocks companies release news and pay promoters to pump their share prices with sensational headlines. These companies generally use keywords like “agreements, contracts, advancement, etc” as they think that most investors are lazy and they do not read past the headlines. These penny stocks companies recruit third-party online promoters to send out promo emails and publish misleading false articles.

Before investment keep in mind

Research the competition and industry sector in which the company operates. Look at the company's history and the reputation of the management. You can find this information from various sources, such as company websites, reliable sites that track stock performance, etc.

Try to target companies with good results and consistent performance.

Some companies insert emails, newsletters, and other material disclaimers to promote the stock. It is important to read this carefully.

How to find the stocks

Before answering this question answer yourself Do you want to invest in penny stocks?             

We have discussed above the pros and cons of penny stocks. If you wish to invest in penny stocks then read further.

1. Understand the market

Whether it is an investment in penny stocks or any stocks you need to have knowledge of the market, whether the market is bullish or bearish, the market trend, the movement in the market. you need to gain knowledge about the market and study the market.

2. Proper analysis

There are thousands of shares listed on the stock exchange, proper research is done about the industry and the company. Generally, investors invest in large-cap and mid-cap companies, very few invest in micro-cap companies.

Before making an investment in penny stock companies first study the industry it belongs to and then research about the companies, its promoters, its management, carry the fundamental analysis of the company, check whether it is debt-free, the background of the promoters.

3. Trade with virtual money

If you are investing in penny stocks for the first time begin with paper trading, test yourself in the live market with virtual money and after gaining confidence invest your hard-earned money. Create your imaginary portfolio for some time test your knowledge, skill, and strategy, and then invest your money.

4. Value and price

You have two companies to invest your Rs 5000.

Company A is trading at Rs8 per share and

Company B at Rs 3 per share

You would be attracted to company B as its trade price is lower. Before investing assess the value of the company. The reality is not always what is seen, it can be possible that the value of company A is greater than company B. company A could have turn to multi-bagger due to its reputation and value.

To determine the value of the company you can study the book value per share and P/E ratio. The book value per share helps in determining the net worth of the company and the P/E ratio helps you understand whether the company is undervalued or overvalued. If the company is undervalued it means the company will perform better in the future turn to be multi-bagger and if overvalued it could head towards closure.

It is difficult to find these ratios at one place and compare it with its competitors. With Ticker, you can find all the ratios at one place and its peer comparison.

5. Do not lose gold in search of diamond

The pandemic had made many jobless, many people have lost their job and in free time people search for jobs or businesses where low investment is required. There are many rags to riches who would tempt you to earn money through penny stocks and turn you to a millionaire.

Beware of these gold rushes. Don't forget to invest in knowledge before investing money everywhere. Invest in your knowledge first, so no one has to lure you with money.

 Invest after properly analyzing the company you want to.

Tips For Penny Stocks Investment

Since you can encounter many obstacles when investing in low-priced stocks, you may need to work with a financial advisor to guide you through the entire process.

 If you invest in low-priced stocks, you must use your disposable income to do so. Don't risk it by using emergency funds, retirement savings, or other important sources of funding.

 The key to a successful investment is not putting all your eggs in one basket. An easy way to diversify investing is to invest in mutual funds or exchange-traded funds (ETFs).

It is difficult to judge whether penny stocks are good or bad in terms of investment, if proper knowledge and research are conducted and the right penny stock is chosen, the risk can be minimized. Make sure proper fundamental and technical analysis is done before taking any step towards investment.

The Complete Guide on Sector and Industry Analysis

If you are an investor and planning to invest in stocks, read this before proceeding.

Fundamental analysis is an important part of stock research before making any decision about investment. Fundamental analysis includes sector analysis and industry analysis.

What are sector analysis and industry analysis?

Are sectors and industries different from each other?

Before we move to the definition of sector analysis and industry analysis, we shall understand the definition of sector and industry.

The sector is a broader term than industry, the sector is the group of industries that share common characteristics of business activities whereas industry is a group of companies that are into similar businesses or products.

Let us understand with an example: sectors are classified into four parts primary, secondary, tertiary, and quaternary.  The primary sector includes activities related to the environment or earth such as mining, fishing, agriculture, etc. and industry includes the health industry, software industry, finance industry, etc.

Industry and sector are two terms that are used in the economy, there is a misconception among individuals that industry and sector are synonyms and can be used interchangeably but there is a huge difference in both terms.

In the stock market, both sector and industry analysis is used by analysts to study the market.

Sector analysis is analyzing the financial and economic position of a particular sector of the economy. It helps investors in judgment on how companies in their sector can do so efficiently. It also helps to select some of the unprofitable parts.

Sectors perform differently in different stages of the business cycle. For example, in the expansion phase researchers focus on discretionary sectors as their performance increases during this period, whereas when economic growth slows down it focuses on defensive sectors as they outperform when the economy is slow.

The pandemic has forced everyone to stay at the home, which lead to an increase in demand of the retail sector the market has seen a 25% to 75% increase in order volumes as a result of the increased demand.

At this stage, the demand for health and hygiene products has also skyrocketed, as the focus is on these aspects. Demand for hygiene products such as disinfectants and sanitizers, as well as health care products that increase immunity has increased rapidly.

However, as the focus during lockdown was on food and sanitation, discretionary and non-essential items could be seen as weak in demand.

According to India Ratings and Research (IndRa), domestic organized food and grocery retailers can benefit from continued demand for organized distribution and e-commerce staples, with a 10% year-over-year increase in FY22.

After experiencing an unprecedented 19% decline in the January-March 2020 quarter, the consumer goods industry showed signs of recovery in the July-September 2020 quarter, with a year-on-year growth of 1.6%. The growth of the fast-moving consumer goods (FMCG) industry also reflects the enthusiasm shown in the overall macroeconomic situation in the context of economic opening and relaxation of lockdown restrictions.

Retail is one of the sectors hardest hit by the Covid19 pandemic. According to the Retailers Association of India (RAI), only 7-8% of the retail sector has returned to work after the shutdown selling only essential items.

Industry analysis is used to understand the industry's competitive dynamics, allowing them to gain insight into what is happening in the industry.

Industry analysis provides business entities or investors with the necessary information, which will help develop effective roadmaps. It can help owners understand the various opportunities and threats the business will face so that they can take steps to take advantage of the opportunities effectively.

In Financial Year 20, organized retail contributed approximately11-12% of the total retail industry. This share is expected to grow to 16% over the next 5-6 years, with the organized retail market growing at a CAGR of 20%. Interestingly, over the past5 years, the organized retail market has grown by 19%, increasing the penetration rate from 7% to about 11%.

Before making certain investment decisions, investors perform analysis to have comprehensive knowledge of the sector or industry in which they want to invest. Therefore, it is very important to analyze before making a decision. Because it helps us to assess the economic and financial prospects of an industry, a sector of the economy. By performing an analysis, it helps to identify areas where strategic changes will help maximize profits. It provides us with knowledge of untapped opportunities in the industry and economy.

A sector can have several industries under it, for example, a retail sector can have multiple industries like groceries, clothing, convenience, etc. Therefore, industry analysis will help to understand which industry within that sector is likely to perform better.

Industry and sector analysis helps to assess a company's future outlook and identify strategies that improve the efficiency of a particular sector, not just the industry.

It is a tool for developing competitive strategies that serve as the best defense for these potential candidates.

Sector and industry analysis is subjective and does not guarantee success. However, first understanding the sector and then determining the industry may not work well and you need to perform a bottom-up analysis that is, analyze the industry first, and then analyze the industry.

Analysis of sectors and industries allows investors to identify specific strengths and weaknesses of an organization.

Once you have opened the Demat account perform sector analysis with the help of Ticker where you can get the sector-wise ratios for free and stocks of similar industries categorized under different strategies called bundles. These exclusive features of Ticker are absolutely free.

So, start your investment journey because if you don’t succeed at first failure may be your style.

Trading Vs. Investing: Which Is Better for You?

Value investing is about investing in a company by value, not by price. What is the difference between value and price?

The price is what you will pay for it, and the value is worth it.

The stock market is volatile in nature, there is a lot of fluctuation in prices. If a lot of people are selling in stocks, the prices will fall; if enough people are buying, the prices of the same stock rise.

Benjamin graham the father of value investing first introduced the concept of value investing in the 1920s. He purchased stocks of those companies who were trading at two-third of their net value.

The value of the company remains the same and the company has not become better or worse in the low or high share price. If it is a stable company, it remains stable; if it is profitable, it is still profitable. Thus, value investing refers to make a qualitative analysis of the company in which it tends to invest.

The investor of this type of principle that buying shares are becoming a partner of the company, because of this, he must believe in the growth potential of the company. In value investing, investors buy such shares because he believes in the value of the company and wants to be part of the same.

If you invest in a good company, the ups, and downs of the stock price should not affect because regardless of the stock price, the company’s value follows the same.

The intrinsic value, however, is an estimate of the investor. The estimate is grounded in detailed analysis using objective data, it is not observable and therefore includes the level of. You need assets liabilities, equity shareholding, and various other data to find out the value of the company. 

You can access all this information for free with the help of Ticker, along with the information you can benefit from the latest news of the company you want to invest in. the exclusive feature of the ticker is bundles where you find shares of similar characteristics in one bundle i.e., you get all the shares of the company that is undervalued under one bundle.

You can also use the valuation calculator provided by the ticker to calculate the value of the company.

Buffet said to invest successfully you do not need to understand complex concepts or master the technical analysis, real investors only need to learn how to evaluate the company and how to think about the price of the stock. He further added,” I am a better investor because I am a business person and I’m a better business person because I am an investor. 

Investing based on value investing is becoming a partner of excellent companies. The fundamental rule for the investor is to analyze companies as if evaluating a possibility of becoming a member of a big deal.

Value investing is to invest in a business that you like, know and trust. Your goal when investing should be to buy the stable prices, stocks of companies whose businesses are easy to be understood and whose profits tend to be exponentially greater in a horizon of five, ten-twenty years.

Investing in value is hunting discounts… 

We understood what is value investing but how to begin?

The secret of the value investor is-

Discipline, Patience, and Psychological Strength.

The most important characteristic is to be mentally and psychologically trained to analyze and develop confidence because often investing in value is not the right way to reach a consensus. Discipline is essential for the investor to analyze and develop their studies and investment by their conviction and results.

Often value investing presents investment options that go against the market trend, the discipline and focus are critical for investors to apply their capital respecting their studies and not be carried away by the herd. Patience means waiting for the time until the investment gets mature. It is important for the investor to face opposite positions to the market which can be uncomfortable from the psychological point of view.

The next strategy as a beginner you must follow is Buy and Hold

You must invest in stocks as a long-term investor because warren buffet said “if you are not willing to own stock for ten years, don’t even think about owning it for ten minutes.” In order to earn a better return from the investment, you must be patient and disciplined as said earlier. You must give time to your investment to grow.

Invest in a company you understand

You need to invest in a company that you understand, instead of wasting time assessing a company you don't understand, you need to invest in a company you understand and do the analysis you need to know where your company is.

Perform fundamental analysis to understands the future development direction of the company, industry trends, and Factors affecting the development of the industry. If you don’t know a company, do your research first and then invest. If it looks complicated, turn to another company or business.

Keep the cash

Investment opportunities are not always available, or in a dominant economic environment, it may not be the right time to invest in a particular industry. Valuable investment opportunities that arise through market adjustments are traded in individual stocks. However, these events cannot be accurately predicted if there are no companies on your list with your investment goals.

You must know when to sell

Warren Buffet is advised to buy and hold the shares, but the fundamentals of the company are not always the same, it also changes with time, investor must know when it is the right time to sell the shares and look for other good stocks.

Buffett advises investors not to treat their investments as "stocks," but to treat the purchase of stocks as a purchase of the entire company. A company buys a company because it wants to own it, not because it wants the stock to go up. Investing is often more difficult than Warren Buffett. By following a simple method rooted in common sense, you can learn to manage your portfolio to better reduce the number of costly mistakes and high return on investment.

Always remember what Warren Buffet said “Price is what you pay. Value is what you get.”

Secrets Of Stock Market

With little chance that you have contributed and seek guidance, do we hardly have any tips on what to do today to recover your portfolio faster and better? With the chance of being a beginner and putting resources on the financial exchange, we also extravagantly guarantee the privileged facts of the stock exchange, which will help you create and deal with your wealth.

People have a characteristic tendency to follow the group, but concerning the contribution of the exchange of securities, after which the group can often cause misfortune. Why repeat the average quality of the majority when you can clone the achievement of the largest investor in the world.

The Secrets

• Like a game, the financial exchange has its standards. We will see seven of the title exchange leads in detail in this article.
• Maintaining these principles will help you achieve results in exchanging securities.
• Any choice you make in a financial exchange venture must be justified and empathetic to get results.
• Finishing what was started in any case, during money-related storms never to surrender players, is significant for winning financial exchanges.
• Enthusiastic development, discipline, uninterrupted organization, and practice are fundamental to winning the game of financial exchange.
• You face a determined challenge in the offer market and not a risk of visual impairment.

In case you are a newbie, putting resources on the stock exchange, we also intricately guarantee the privileged facts of the financial transaction, which will help you to create and deal with your wealth.

However, people have a characteristic propensity to follow the group concerning the financial contribution, after which the group can cause misfortunes regularly. Why reproduce the average quality of the majority when you can clone the achievement of the largest investor in the world?

The privileged facts of the stock exchange/mysteries of the Warren Buffett speculation were released here. This offers inside information on the market that will help you to reveal and see

"How to win in the financial exchange."

A game has its own set of rules. You can dominate the game for an extended period of time if you follow the principles and play the game. There is a justification behind every move in the game. To dominate the game, the mentality of never surrendering is significant.

Besides, passionate development and control are required to become effective in the game. A player faces exceptionally determined challenges in a game. Constant planning and practice make the player productive in the long run.

Bets have less guidance than a game. Winning bets depends on karma or possibilities. A speculator faces a dazzling challenge. Extremely less readiness and practice are done here. There are no specific techniques for placing bets. Some people bet on the stock exchange. However, with little chance of accepting financial transactions as a game, it will help us to be productive in the long run.

The stock exchange gradually seems like a game.

Like a game, the stock exchange has its principles. Adherence to these standards will help you achieve excellent results in exchanging securities. Any choice you make in the financial exchange venture must be justified and solid to obtain results.

In any case, continuing until the end, during budgetary storms to never surrender players, is significant for the conquest of the stock exchange.

Passionate development, discipline, relentless disposition, and practice are fundamental to winning the securities exchange game. You face a determined challenge in the offer market and not a risk of visual impairment.

Why do these remain Secrets?

A reality thought or methodology remains a mystery since it is less known or unknown by most individuals.

Ex: how does Google rank different pages on the site? This is kept as a mystery by individuals. The vast majority of us don't think about it.

The seven privileged facts of placing funds on the stock exchange do not fall into this class. There is another arrangement of privileged facts. A reality thought, or procedure is accessible in open code, but less tested by most individuals.

Ex: Values ​​and exercises of life clarified in the holy books. They are accessible to us in open source but are tested by a few people.

The second set of privileged facts is not simple to follow or update, however much it is worth knowing. The seven mysteries of placing resources on the stock exchange may seem to have been known so far in some structure. Either way, you will have another point of view.

The moment we share a business, we have to dissect it for its lengthy records. Momentary returns during buying markets will not validate the nature of the procedure followed in the industry. During buyer markets, even a notable company will bring in money. Therefore, an extended reputation will discover the organization's genuine firmness and ability.

Examining the longstanding reputation and historical data analysis through screener will help us choose the organizations' correct stock or a batch of shared reserves with privileges that make solid long-haul choices, regardless of influencing transitory execution.

A financial expert should not miss out on these ventures with long-term dreams. Organizations or reservation plans shared with a long-haul idea of execution are always better than individuals who focus on transitional performance.

Just buy something that you would be happy to keep if the stock exchange closed for a long time. In the short term, the stock exchange resembles a democratic machine - as long as companies are famous and don't like it. However, in the long run, the stock exchange resembles a gauging machine - examining the substance of an organization.

Taking a look at the momentary open doors on the stock exchange will not be an effective system. In case you don't feel good claiming something for a long time, at that point, don't have it in any case, for 10 minutes.

Conclusion:

Finding the right stock is right, but understanding whether they are underestimated is an alternative and problematic thing. By examining the organization's basic concepts, such as income, outcome, and resources, we can show the original estimate of the organization. In case the natural value is higher than the present value, at that point, the stock is undoubtedly underestimated. It deserves to put resources in that organization.

It is tough for an individual speculator to dissect a large number of stocks and discover the fitting opportunity to buy stock in the stock/shares announcement. In that case, you can reapply this Portfolio Management Scheme to a specialist money organizer or wealth manager. In any case, you should be careful when choosing an expert budget organizer that is both competent and customer-oriented.

Written By: Ausaf Ahmed.