Why Its Best To Avoid Penny Stocks Or Low Single Digit Stocks That Have Emerged From Bankruptcy'

Generally speaking I Im not a big fan of companies that have emerged from a chapter 11 bankruptcy. they just do not seem to perform very well in most cases. I do not really know why. It could be that a lot of their best management people have left for greener pastures during the bankruptcy process. It could be that much damage has been done to the company during the bankruptcy process. The creditors generally care little about the business their goal is to maximize the  monetization of the companies best assets. The best most profitable parts of the company may be sold off to satisfy the creditors. Leaving the lesser quality divisions of the company to survive the bankruptcy process. Many companies in  bankruptcy  have filed  bankruptcy before for a second time. That tells me that many of these companies are not of the best quality. If a company has issued warrants when they exit bankruptcy. I would prefer buying those warrants rather than the shares of the company exiting bankruptcy. The warrants can be purchased for pennies on the dollar in some cases and if theirs a solid recovery in the performance  of the company the warrants could be worth 20 or 30 even 50 times what they were issued for when the company emerged from bankruptcy. You also put very little money at risk when you buy stock warrants in a company. Because generally speaking the warrants trade for pennies on the dollar in some cases. You can get a hugh payoff for a small investment by buying the warrants instead of the shares in the company.






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What You Should Do If You Buy Shares In Penny Stock Or Low Single Digit Stock That Files For Bankruptcy After you Purchase The Shares'

Now here is a situation that every investor in penny stocks or low single digits stocks will experience at some point in time. What if you buy shares in a company thats not in bankruptcy when you buy the shares. But the company ends up filing chapter 11 bankruptcy shortly after you buy the shares. In almost every case your best bet is to try and sell your shares into any kind of nice rally. Even shares in a company in  bankruptcy can have big moves in the price of their shares. Take advantage of any big rally to unload your shares. Never attempt to ride out the bankruptcy and hope that their will be something leftover for you when the company finally emerges from  bankruptcy usually theirs little or nothing leftover for the common stockholders at the end of the bankruptcy process. If you purchased your shares for say 1 dollar and they decline to 5 cents after the company anounces that they are filing for bankruptcy. Just watch the stock and see if theirs a nice rally if theirs a rally in the shares to say fifty cents take advantage of that rally to bail out of the stock. That way you have at least recovered 50% of your original investment in the shares. Do not think its a lost cause some companies can be in chapter 11 bankruptcy for many years. Their may be plenty of time for that rally to come any positive news about the company can cause the shares to rally even if the company is in chapter 11 bankruptcy.  Sometimes the shares may not rally sometimes the company may suspend trading of their shares while their in bankruptcy. Sometimes theirs just no market for the stock. In that case it really does not make a whole lot of difference because your shares ae most likely worth very little anyway. You might want to just wait and see if their will be any new shares issued to you once the bankruptcy process is complete.






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Why You Should Never Invest In A Penny Stock Or Low Single Digit Stock Thats In Chapter 11 Bankruptcy'

Now here is another no brainer. In the vast majority of cases companies that are in chapter 11 bankruptcy are a bad investment. Most of the time theirs no equity for the common stock shareholders when and if the company emerges from bankruptcy. Their are some cases when the common stock shareholders receive a token  interest in the company when it emerges from bankruptcy. Maybe 3% of the new shares issued. In a very small number of cases the shareholders receive decent number  of the new shares issueed  Generally speaking when a company comes out of bankruptcy the old shares are canceled and new shares issued. Everyone that owns shares in the company before the bankruptcy is finalized will generally have their shares canceled. That means the shares are worthless. The common stock shareholders are at the end of the line all the other parties in the  bankruptcy are legally entitled to receive equity in the company emerging from bankruptcy ahead of the common stock shareholders. Secured creditors are ahead of unsecured creditors and so on. Thats why its a bad idea to get into a company thats involved in a chapter 11  bankruptcy. And if the chapter 11  bankruptcy is converted into a chapter 7  bankruptcy which is a very common occurrence than theirs almost no chance that the common stock shareholders will receive any compensation. In a chaper 7  bankruptcy the company will not stay intact as a company instead all of the assets of the company different divisions will be sold off to pay off creditors or if the company shuts down land inventory trademarks and so forth  will be sold  to pay off creditors. Best advice stay away from companies trading in chapter 11 bankruptcy












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Why I Always Recommend Investors Always Avoid Penny Stocks Or Low Single Stocks That Are In The Financial Services Sector'

I would like to make this clear. I am not a fan of financial services stocks. I have a real problem with these type of companies. All they do is move money around its really that simple. They do not create anything of value theirs no real product or service that they provide. Consumers need a bank or other financial company to provide checking accounts for paying their bills by check for example. Or they may need a mortgage to buy a home. The bank is just a middle man for the money changing hands  between the buyer and seller. Banks make their profit by loaning money out at a higher rate than what they pay on their deposits. Businesses need a bank of other financial services company to provide a line of credit or they may need a bank to deposit funds in various types of accounts payroll accounts and so forth. Another reason that I dislike financial services stocks is this when a bank goes under the shareholders are instantly wiped out once the federal deposit insurance corporration takes over the bank the short name for this federal agency which is responsible for the orderly process of selling the banks assets paying off insured depositors  and so forth is the FDIC. When this happens you will lose 100% of your investment. Financial services stocks have a terrible record a record number of banks failed back in the 1980's. What we  witnessed in the panic of 2008 and 2009 when some of the countries largest financial institutions failed or were prevented from failing because the governemnts TARP program saved them. Their were many publicly traded rmortgage companies that went under that specialized in subprime mortgages. Financial stocks have one of the highest risk profiles of any class of stocks   I would much rather invest my money in a company that makes a product or provides a neccessary service.






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Why I Recommend That Investors Investing In Penny Stocks Or Low Single Digit Stocks Avoid Gold Silver Or Other Types Of Mining Companies'

Now I know that lot of penny stock investors and investors in low single digit stocks wiil be tempted to buy a penny junior gold mining stock at some time or another. The problem with these type of companies is they have a much higher failure rate than  penny stocks or low single digit stocks that are in a business area outside the mining sector. The penny stock mining business is probably one of the most speculative highest risk industries out their why bother with these type of stocks when their some many other penny stocks and low single digit stocks out their that have a much lower risk profile and have far better prospects and potential than penny gold mining companies. In many cases companies in the penny junior gold mining sector are ideal plays for pump and dump scammers.

The link below is a you tube video about a pump and dump scam the company is involved in the penny junior gold mining business.



http://www.youtube.com/watch?v=e8M7Q9T4NfI









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Why Its So Important To Not Buy All The Shares In A Penny Stock Or Low Single Digit Stock all At Once'

Now here is another no brainer. If you decide to purchase shares in a penny stock or low single digit stock never buy all the shares all at once. Its impossible to know the exact bottom for a stock. Penny stocks and low single digit stocks are a lot more  more volatile then the typical higher price stocks. Use this volatility to your advanatage. The price that you are paying for a penny stock or low single digit stock will most likely not be the bottom for the stock. The shares will most likely go lower before they go higher. Most penny stocks and low single digit stocks that are trading close to their fiftytwo week lows will almost certainly go lower before they go higher. I would recommend investors purchase penny stocks or low single digit stocks in positions of three or four increments that way everytime the stock declines a little further you can add to your position in the stock at a lower price. You will be averaging out the price you pay for the shares. Instead of trying to guess when to buy all your shares at the right price. In other words if the share are a good value at 2 dollars they are an even better value at just 1 dollar thats assuming the companies performance is no different than it was when the stock traded at 2 dollars

The only time that I would avoid adding to your position in a penny stocks or low single digit stock at a lower price would be if theirs a real deterioration  in the companies fundamentals. If theirs a very large drop in the price of the shares thats accompanied by a serious deterioration  in the companies financials maybe a large loss or some other very serious issue. Than I would most likely take a pass on buying more shares of the stock. As far as the shares that you already own you can just retain those shares.


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What Is A Pump And Dump And How to Avoid Being A Victim Of a Pump And Dump Scam'

This scam has been around for a very long time. The basics of a pump and dump scam are such.
I am sure if you have been active in looking up info on penny stocks online you have come across websites on the web that will email you their next big penny stock pick free of charge of of course.

They may make wild claims about a little known oil company in the hills of appalachia or somewhere else. They say this little company will soon be producing millions of barrels of oil better get into the stock while theirs still time. It trades for only 20 cents a share. The stock could go to 2 dollars a share in the next six months.

Another example might be theirs a fuel additive being developed by this company that will enable motorists to double their gas millage by using this additive. Stocks trading for 15 cents could be at 1 dollar in a few months  Get the idea

Now this is how a pump and dump works. The scamers email thousands or millions of persons about the great prospects ahead for this company. Send out faxes to thousands or millions of potential investors and maybe a few dozen or maybe even hundreds of unsuspecting would be investors will buy into this scam by purchasing shares of stock in one of these companies. Turns out that the oil company in  appalachia or somewhere else does exist but the wells been dry for years. And that company that was supposed to be developing that fuel additive to double gas millage turns out it never got out of the lab turns out their never was such a product in development at the company at all. The company was just a shell company used by scam artists to get unsuspecting investors into the stock.

The scam artists carefully found a company where they could easily manulate the price of the stock to their advanage. usually a stock trading on the pink sheets or the over the counter bulletin board. Its most likely theirs the need for collusion with the management of the company to pull off the scam.

So the scam artists buy shares in these stocks ahead of everyone else than start to  make wild and almost unbelievable claims about the future prospects for the companies to help drive the price of the stock upword sending mass emails out to unspecting investors sending out mass faxes anyway they can have the maximum possible impact on the stock price. Thinly traded shares in a very small company can increase by huge amounts if theirs just a modest increase in the demand for the shares. Once the scam becomes known the stock collapses leaving most of the unspecting investor with shares worth little or nothing

The scam artists have long bailed out of the stock once the music stops


A word of advice stay away from websites which make unrealistic claims about a stock and promise to email you their next big winner for free .


The the link  below is a video about a pump and dump scam.




http://www.youtube.com/watch?v=e8M7Q9T4NfI









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Why A Very Low Price To Sales Ratio Could Be The Most Important Factor When Investing In Penny Stocks Or Low Single Digit Stocks'

Once again I will attempt to make this as simple as possible. A low price to sales ratio is a simple way to determine if a company is very undervalued. Theirs a lot of reasons why a stock might trade at a low price say 1 dollar or 4 dollars a share. But how does one really know if the stock is a bargain if it trades below 5 dollars or below 1 dollar their has to be a way to really measure the value of the company. The price to sales ratio is the key because its so simple anyone even those with little financial knowledge can easily determine this valuation. I will give a simple example of a stock with a low price to sales ratio. Suppose theirs a stock that does 200 million dollars in annual sales now the market cap of the company is only 10 million dollars annually. This means that the value of all of the shares trading in the market are worth only 10 million dollars. In other words the value that the market is placing on the company is just 10 million dollars. Get the idea sort of.

Here is a simple breakdown of this measurement

Their are a total of  2 million shares issued and  outstanding thats all the shares that are held by shareholders.

The price of the shares trading in the market is 5 dollars

So 2 million shares valued at 5 dollars a piece = 10 million dollars.

The company does 200 million dollars in annual sales but the value of the  business is just 10 million dollars. Thats what I mean when I say a stock with a very low price to sales ratio could be a great bargain because the value that  the market is placing on the business is so much less than the annual sales of the company.

Find a low single digit stock or a penny stock in a  halfway decent company with a very low price to sales ratio and you will have the odds heavily in your favor compared to low single digit stocks and penny stocks that lack this so very important valuation factor.

In order to have a high likelihood of making enormous profits in a low single digit stock or penny stock a low price to sales ratio is a essential element.


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Why Investing in Penny Stocks Or Low Single Digit Stocks Of A Larger More Diversfied Company Is Usually A Safer Bet'

Now I talked a little about this in a different post. The real problem with a lot of very small companies trading below 5 dollars or under 1 dollar is simply the fact that  a lack of diverscation is a real problem. We could be talking about a single product that will make or break the company based on its performance. Or we could be talking about a company that gets most of their business from one customer say walmart is the largest customer for a company that makes a soda product maybe 50% of their annual sales are to walmart. thats a high risk to the company if for some reason walmart decides to not buy their product anymore. Larger more diverse companies are less likely to be so heavily dependent on a single customer for their product or service  By favoring somewhat larger more diverse companies the risk is going to be lowered  because their success or lack of success might not depend so heavily on the whims of a walmart purchasing manager.

Finding larger companies trading below 5 dollars or below 1 dollar will require more effort because most sub 5 dollar stocks and sub 1 dollar stocks tend to be very small companies. Its worth the extra effort  because the risk level is generally  lower for companies that are larger in size. We are talking about companies doing maybe around 100 million dollars in annual sales or more. You are more likely to find low single digit stocks and penny stocks trading on the new york stock exchange and the nasdaq that do over 100 million dollars in annual sales  than on the over the counter bulletin board or the  pink sheets.



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