Finding the best penny stocks just got easier…

People often wonder how is it that other investors keep getting ‘lucky’ and choose great stocks while they are stuck with the losers. To begin with, luck doesn’t have anything to do with it. Some investors have come up with a set of rules and have a process for picking their winners. Do you?

1- P/E ratio: Get your calculator out. No, we’re not going to give you mind-numbing number crunching methods. Just one ratio to being with. The P/E ratio to start with. The P/E or the Price to Earnings ratio is probably the most well-known financial calculation in stock trading. Thats for a reason, it is an easy one to use and it gives you a quick snapshot about the valuation of the company. But, the P/E of the stock alone isnt too useful. You need to know the P/E of the industry sector the penny stock company operates in as a whole. Then, you will know whether the company’s stock is cheap, fairly-valued or overvalued (expensive).

2- PEG ratio: We still the calculator. This time you need to use the Price to Earnings/Growth or PEG ratio. This is the stocks P/E value divided by the projected growth in 3-5 yrs. The lower the PEG ratio the better this company could be for your portfolio. Ideally, companies with less than a PEG value of 1.0 are worth researching further.

3- Financial Analysis: Dig deeper into the up-to-date audited financial statements. Right now, you need to look at net profits and cash flow. The net profits will give you a quick overview of how the company is doing but the cash flow is the lifeblood of a growing business so look for a consistent if not increasing cash flow. Without this, the company won’t be able to compete for long.

Continue reading part 2 of our top penny stocks guide