Finding Value in Penny Stocks
Lately I have read several articles and blog posts bashing penny stocks as scams, or at least not worthy of consideration for “real” investors. I beg to differ with this gross generalization. I believe that the share price of a stock (or ETF) should not be solely used to automatically discredit its investment potential. In my research, I often look for under-valued stocks that have excellent growth potential and the market has either not yet recognized them, or they have lost value for whatever reason and have dropped into “penny” stock range – that is under $5.
To prove this point I used the CAPS screener to find some hidden values. Here are my screening criteria for what I am calling Top-Rated “Penny” Stocks:
Min 4-star CAPS rating as of Aug. 30, 2010
Price to Book < 2.0
Current Share Price < $5
Dividend Yield > 0
33 stocks/ETFs met these criteria. Here are a few that stood out, some of which I own in my real life portfolio.
CIM, CSE, NRF (REITs)
ESEA, PRGN (shipping sector)
CIK, HYF (bond funds)
SGU (gas utility)
Do your own research, but don't ignore penny stocks simply because they look too cheap!