The financial industry has produced a number of truisms about the marketplace over time. Market truisms are excellent because they’re generally true and easy to keep in mind. You can throw them out in informal conversations and watch your audience nod their heads in agreement. One truism obtaining a lot of press these days is about small enterprise stocks.
It goes something similar to this. Small enterprise stocks perform much better than large company shares as the overall economy comes out of a recession. And, according to the Wall Street Journal, there is proof to back again this up. That is clearly a pretty strong argument for having some quality very cheap stocks in your portfolio. You don’t want to lose out on the coming rally. The problem is you can’t wait for proof the downturn is finished before buying. Economists shall call the official end to the tough economy many weeks after it has already occurred.
By that point it will likely be too late. Penny stocks will have already made a significant move upwards. The time is to selectively add very cheap stocks to your collection now. As an added bonus, you can buy these stocks and shares right on the cheap now. Institutional investors have been selling small enterprise stocks over the board since last September. As measured by the Russell 2000 Index (RUT), small company stocks are down almost 38% within the last twelve months.
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Anytime you have indiscriminate offering like that the nice companies get sold off with the bad. As a total result, many quality very cheap stocks are trading at huge discounts with their true value. The relevant question is how will you find them? Over the full years, I’ve found the best performing penny stocks share three important qualities.
I look for these characteristics when researching companies for my monthly investment advisory, Penny Stock Breakouts. As a special favor to Brian, I’ve agreed to share these valuable secrets with our loyal Dynamic Wealth Report readers. The very first thing I look for is income growth. As much of you understand, earnings power can be an important factor traveling a company’s stock price. However, a company can’t grow its earnings whether it’s not growing income.
Earnings growth with no accompanying revenue growth is usually an accounting trick (stay away from these stocks). I’m looking for companies that regularly grow their revenue faster than the average because of their industry. I’ll take a look at their revenue development quarter over one fourth and calendar year over calendar year. Then I’ll compare these numbers to the industry development rate. The companies growing their income faster than the industry average are most likely growing their profits faster than average as well. The following point I look for is earnings growth. Earnings are essential because they’re the best way of measuring a company’s well worth. Companies that make money will see their stock values rise over time consistently.
But, I’m not thinking about companies reporting the same old earnings each year. I want to find companies growing their profits at a rapid pace. These shares make bigger movements in shorter periods of time. The final thing I really do is determine which of these growing companies is misvalued by the market fast. Though they have high growth rates Even, you don’t want to overpay for this growth.
A simple yet effective way to get this done is to look at their PEG ratios. The PEG ratio is calculated by dividing the business’s Price to Earnings (P/E) ratio by its annual EPS growth rate. A PEG of just one 1.0 means the stock price completely reflects the business’s income potential. A PEG lower than 1.0 means the stock is misvalued by the market. Over time, you’ll receive higher earnings by buying stocks and shares with lower PEG ratios.
Stocks with higher PEG ratios will usually fall to a cost that more accurately shows the company’s income growth potential. As I said before, I’ve used these three simple rules with great success. They’re an important part of my selection technique for Penny Stock Breakouts. In fact, using these exact rules, I’ve found stocks that have doubled and tripled since last September (when the market began getting really bad). Important thing, you should make these rules an integral part of your stock picking strategy. Use them now to find the next big winners in the coming rally for small company stocks. You won’t be sorry you do.