Penny stocks are one of the few investments that can make you truly rich fast
You know penny stocks can make you rich but how do you find the ones for that triple-digit return? With just as many of these small cap stocks losing as winning, how do you find the best penny stocks to buy that will grow your portfolio?
In this video, I’ll not only share a strategy for boosting your returns in penny stocks, I’ll show you what to look for in these investments and reveal three stocks to watch in 2020 that could make you a millionaire.
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One of My Favorite Get Rich Strategies
I’m excited about this video. It was originally going to be a part of a longer video on five strategies to get rich but writing it out, I started to realize the potential in this one and wanted to make it a video all by itself.
Those of you in the nation know how penny stock returns can boost your portfolio. I recommended Eldorado Gold back in April as one of my favorite small cap stocks with the stock around $4.58 per share and just before it exploded higher. Within five months, the shares touched $10 each for a 123% return and are still at a 65% return after coming down a little.
Even if you held the shares the eight months since that video, you’d be sitting on a 98% annualized return.
Now that alone has the potential to make you very rich very fast but I’ve got a penny stock strategy we can use with this to amplify your returns like two- or three-fold.
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How to Start Investing in Penny Stocks
In this video, I’ll start by showing you that opportunity in penny stocks. How these investments beat the market and why. Then we’ll look at that trading strategy to double or triple your return and how to set it up. I’ll show you exactly what to look for when picking penny stocks and then reveal three stocks I’m watching for massive gains.
Again you can make some massive returns on penny stocks alone. I was in the Webull app earlier today screening for stocks and saw two just exploding. First Hepion Pharmaceuticals was up more than 50% on data from a pre-clinical study. The company was valued at just $12 million yesterday and $2.45 per share.
You can scroll through here in the app for all kinds of technical charting, you can get analyst targets, news, everything you need to analyze a stock.
Also today was Wah Fu Education group, a test prep service out of Beijing, up almost 210% today on news that it signed a partnership agreement with a major university.
Again, all kinds of information from short interest to charts and news on the app.
The features on Webull were made for traders from access to extended hours trading to low margin rates and my favorite, the stock simulator to test your ideas that I’ll show you how to use.
So you can make those returns you need on penny stocks and I’ll share a few points to picking stocks next but we’re going to amplify our returns through margin stock trading.
This is where you borrow on your account to invest more than the account value. Webull offers four-times day trading power and two-times overnight buying power with margin rates from 7% to 4% depending on your account balance.
That means if you have $5,000 in your account, you can buy $20,000 worth of investments on a day trading basis or up to $10,000 worth of stocks if you planned on holding them overnight. You’d pay the interest rate for any money borrowed, so that four to seven-percent annualized rate.
That margin investing is going to boost your returns. For example if you start with a $5,000 account, investing another $5,000 on margin and finding two penny stocks a month for a return of just 13% each, you’d reach a million dollars in one year.
How to Find Penny Stocks
Now I want to walk you through how I find penny stocks to buy, how to pick the ones with the most potential and how to use that investing simulator on Webull. I love this feature for being able to test out my ideas in play-money portfolio on the app before I go all-in with my own money.
You can screen for stocks of companies under a certain size or share price in the Webull app and create a screener that continuously looks for these stocks. I started with companies under one billion dollars market cap, that’s really the definition of small cap or penny stocks.
Webull is also constantly rolling out new features and trading. The app just released Webull options trading and will soon include cryptocurrencies.
You can also use some of these technical indicators which screen for momentum and other patterns in a stock so I’ll use one of the relative strength signals and see which stocks meet the screen.
Once you’ve got a list of stocks that meet these basic fundamentals and maybe some of those technical signals, it’s time to dig into the financials a little. This is going to take some time but nobody said getting rich on penny stocks would be easy…OK, a lot of people say getting rich on penny stocks is easy but you shouldn’t believe them.
When I’m looking for penny stocks with double- or triple-digit potential, I’m looking for four more things in the financials. First I want to find companies that have grown their sales over at least two or three consecutive years. Even if the company isn’t profitable yet, it’s at least getting closer with this positive sales trend.
I also want to see a consistently higher operating margin. That operating margin, or the operating income divided by the sales on the income statement, that trend is hugely important especially for these small, fast-growing companies. You see, most penny stock companies, they’re growing sales so fast, they’re sacrificing efficiency for growth in this stage. Sales are growing but they’re also spending so much on marketing or more staff that the operating margin or that profitability is decreasing.
But if you can find a company that is growing sales AND becoming more profitable while it’s doing that, you’ve got the potential to see earnings explode.
I also want to watch for runaway debt for these companies because a lot of these, they’ll get loose with the spending and start using lots of debt instead of keeping things lean. Management rationalizes that it’s ok to borrow because the company is growing so quickly but it’s just a noose that slowly tightens over the company. So I’m looking for companies that are able to produce that sales growth, do it efficiently and stay lean without blowing out their debt-to-equity ratio.
Finally, I just take a quick look at the stock chart, and this isn’t anything scientific but I don’t want to invest in a company that’s been around for decades and never did anything. You see these all the time, companies trading in that penny stock space for decades and never seem to make it into the big time.
Best Penny Stocks for 2020
Now once you’ve found some penny stocks you want to follow, you can either buy the shares or use this paper portfolio feature in Webull to follow the stock for a while. The app gives you a million-dollars to test out different strategies and stocks before you make a real trade.
So you go into the app and you see I’ve already been testing a few stocks with simulated trades. If I go into a stock and click paper trading, it takes me to this page to buy the shares. Then it’s just like a normal trade where you put in an order to buy the number of shares you want. I can follow the stocks in my paper portfolio just as if it were real money.
Now I want to highlight three penny stocks I found using these criteria, three that I think have a lot of potential for those fast double-digit returns.
First is $544 million MobileIron, ticker MOBL, a leader in mobile security.
MobileIron is a platform enabling business customers to secure their applications and content, so we’re talking securing employee devices and business property. That’s a huge growth market right now and a big opportunity for the company.
The company has reported four consecutive years of sales growth at a 10% pace and kept operating expenses stable through the period.
MobileIron is just beginning to be profitable with a seven-cent loss per share reported last year and expected to report it’s first year of profitability over the next four quarters.
Next here is probably my favorite of the group, $482 million Energy Recovery, ticker ERII.
The company provides desalinization services for water treatment as well as waste recycling and recovery services in the oil & gas industry. It’s grown revenue by a 25% annual pace over four consecutive years while only growing those operating expenses by 7% a year so this is a company growing quickly but keeping a lid on expenses.
Energy Recovery has $90 million in cash on the balance sheet and only $12 million in debt so a pristine financial position for a penny stock company.
Earnings are expected lower over the next year but management has been able to more than quadruple profit expectations over the past year so definitely be watching this one.
This next pick, $590 million Vectrus, ticker VEC, is a good example that penny stocks don’t have to trade for under five- or ten-dollars.
The definition of a penny stock or a small cap company is that company size, not the strike price so while Vectrus might trade for $51 a share, it’s still a very small company under a billion market cap.
Vectrus provides logistics and IT services to the U.S. government with critical network communications support to the department of defense.
It’s produced stable sales growth over the last three years while keeping operating expenses under control and lowering debt.
Earnings have been steadily rising and are expected to jump 37% over the next year to $3.85 per share so here you’ve got a growing small-cap company trading for just 13-times on a price-to-earnings basis.
Penny stocks can be extremely risky and you'll make the investment riskier still using margin but it's one of the few investments available to get truly rich in less than a year. Spread your portfolio around a handful of penny stocks. Cut your losses fast on the ones that don't jump and hold your winners for a seven-figure payday.