How We Pick Stocks

This is not rocket science or brain surgery. Actually, it is probably more complicated, since rocketry and brain surgery are pretty much exact sciences. Stock picking is not. A slew of cross-currents go into the thought process. Here are most of the factors we consider, though there are some we don't disclose (can't give away all of our penny stock picking secrets).

Recent Gains. Multiple times, every day, we scan the NYSE, NASDAQ, and AMEX for those stocks under $5.00 that are recording the best percentage gains. We then track them for a few days to see if they have "legs". And, of course, we learn what moved them to begin with.

The Balance Sheet. Pretend that stock picking is comparable to creating the Universe. Look upon the Balance Sheet as The Big Bang. Does the company have ample cash and assets to keep it afloat for the next year or two? Is it laden with too many liabilities, such as a heavy debt load? If the Balance Sheet seems reasonably sound, then, half the work is done.

Analysts' Ratings. Although we do not give this much weight, seeing analysts covering a company does provide some degree of comfort.

Institutional Ownership. We do not give this much weight, either, except if a brokerage(s) owns a good chunk of a company, then they may be more inclined to see it succeed.

The Story. The company must be relatively easy to understand - after all, who needs a physics lesson. Is the company in a hot industry sector? If it's high tech or biotech, what kind of proprietary technology do they own? Number of patents? What does their customer base look like and how deep is it? Then, we read the recent news, which can steer us toward a better vision for the future. For example, has a technology company had new product releases? Or has a biotech neared a Phase 3 clinical trial or received an FDA approval? Also, we like a company to be over four to five years old, because that gives us an idea as to their staying power. And, needless to say, we look for any snags, which, in some situations may not be all that detrimental.

Target Prices. Besides giving you all of the above with every recommendation, we also put target prices on all stock picks. However, you need not keep in lockstep with us; choose a target price that feels good to you.

YOUR Big Question. How should I use this Newsletter? We suggest selecting four to six stocks - no need to do it all at once; wade into it. Only pick those that are amicable to your comfort level. AND, do not bet the house on pennystocks - also known as small cap stocks and micro cap stocks. We recommend only allocating 10% to 12% of your total investment dollars.

A Final Thought. This formula has been good to us since we started publishing in 1996. Since then, over 70% of our closed positions are for gains of 50% or greater! That is probably why this is the ONLY penny stock site recommended in Barron's and by Forbes.

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