Hot Penny Stocks

Antares Pharma is another biotech penny stock that’s got promise for the future.  They developed a drug that treats overactive bladder syndrome which is awaiting FDA approval.  That approval is expected in early December 2011, this year.  This week is traded for around $2 per share. Analysts in the penny stock trade say it has a target price of $3.05 per share.

As with many drug company penny stocks, Antares Pharma is a hot target for a big takeover from a larger pharmaceutical company.   Good signs for penny stock investors looking for a drug company to go big would be the fact that a marketing company has signed a deal with Antares Pharma to market their overactive bladder drug, expected to be approved at the end of this year.

AdventRX Pharmaceuticals (AMEX: ANX ) is a biotech penny stock to watch this week.  It’s a drug treatment company but it doesn’t develop new drugs.  Instead, it takes existing drugs manufactured by other drug companies and tweaks them to reduce the negative side effects.

With so many class action lawsuits related to negative side effects of major drugs on the market today, the idea behind AdventRX Pharmaceuticals makes a lot of sense.  They take popular drugs and try to redesign them in order to reduce the negative side effects without comprising efficacy.  A very interesting biotech penny stock for investors.

Biotech penny stocks can be a hot item for investors looking to make a pile of cash.  Of course, as with any hot penny stock idea, biotechs can also be a huge risk.

It can seem like an overwhelming gamble but it’s not.

Analyzing the financials for biotech penny stocks is a bit different than other types of companies, so let’s take a look at the basics of biotech penny stocks.

First of all, in doing penny stock research, we know to take a look at whether the company is making a profit, and if not, why.  And if it’s making no profit or just a little, or just breaking even, what can trigger an increase in revenue and how likely is that to happen?  We’re looking at the product and the business model here.

Well, in biotech penny stocks, the business model is quite different than other types of penny stocks.  In the biotech industry, there are drugs to be developed, in a laboratory setting, which takes time and lots of money.  It’s called research and development, and profits come much later in the game, if at all.  So taking a look at revenue, most biotech penny stocks won’t show a huge income stream…it’s about what’s in the future for the product they’re developing.

Now, we already know that a penny stock is one that has a share price of $10 or under.  In some circles, the definition of a penny stock is one that’s $5 or under per share.  It’s all about the price.

A Small Cap stock is something different, although sometimes people invest in small caps and penny stocks for the same reasons.  Both types of stocks involve smaller companies and more risk, with lots of hope for the potential of the stock, requiring lots of penny stock research.

The cap in Small cap stocks stands for capitalization.  What is that?  It really stands for market capitalization, which is measuring how large the company is.  The get market capitalization, you  multiply the price of one share by how many shares are out there. So you see, a penny stock, with its very low price, is bound to have very low market capitalization.  Some would consider this to be apples and oranges, since penny stocks don’t even trade on the regular stock exchanges so technically their shares aren’t “out there” on the normal market.  However, they are available for trading, so it seems they count.  They are just traded differently, but traded nevertheless.

The definition given for small cap stocks is one where the market capitalization is low.  That’s defined as between $100 million and $1 billion.  There are even smaller cap stocks, which are called nano cap stocks and micro cap stocks.  Then there are the big boys, called mid-cap large-cap and mega-cap stocks.

Of course different sources define small cap stocks differently.  Some say a small cap stock is one with a market capitalization between $300 million and $2 billion.  Well you get the general idea anyway.

So, the term penny stock is just price per share.  You have no idea how many shares are out there, so it’s no measure of how big a company really is.  With market capitalization, however, it’s share price times number of shares, so you can tell how much money the company has, in terms of publicly traded stock.

A mid or large cap stack can also be a penny stock.  If a huge corporation is worth billions and billions, but the stock price falls to $1.40, then it’s a mid-cap penny stock.

Well, we all know the economy isn’t doing so well, especially when you look at unemployment.  The jobless rate just seems to stay up, and jobless claims are still rising.  One thing we know from history and employment trends is that in a shaky economy, permanent jobs are hard to come by, and temporary jobs seem to abound.  Companies rely on temporary staff during hard times, since they can hire and let go at will, pay no benefits, and basically can stay spry in an ever-changing shaky economy.  That’s good news for temporary staffing companies, so-called “temp agencies”.

Let’s take a look at what that means in the world of penny stocks.  This week, we have seen a Dutch staffing company (Ranstad) offer to buy an American competitor called SFN Group.  Their symbol is SFN on the stock exchange.  SFN is (was) a hot penny stock, priced under $10 per share.  The offer was approved by management, and share price rose 51% at the end of this week.  That’s good news for the sector, according to analysts, who are now looking at other stocks in the industry, like Robert Half and Manpower.  Although they are not small cap stocks, they may also be poised to rise in value due to new oppurtunities while the SFN Group and Ranstad undergo transformation into one company.

Again, here we’re using current events to predict what hot penny stocks are on the horizon.  We all know that business affects politics…it’s part of capitalism.  And of course look at the prevalence of lobbyists, corrupt politicians and so on.  Well for once we have a case where the opposite is true:  politics affect business with President Obama’s healthcare reform.  Specifically, we have the Patient Protection and Affordable Care Act (PPACA).

This act is a federal mandate that aims to reduce costs of US health care, among other things.  One provision is that there will be fees on branded drugs.  Drug companies are already adjusting prices upward to make up for future lost revenue when they won’t be able to make as much money on brand name drugs.  The pressure on drug companies from the federal government will be significant.  That pressure will be to keep prices low on drugs.

Add to this the large number of patents expiring in 2011 and 2012 making way for generic versions of popular drugs, and the big drug companies are reeling.

But what’s bad news for branded drug makers is good news for generics.  The market share of generic drugs is already high, but it’s going to get even higher.  If you’re looking to invest in small cap stocks or hot penny stocks, this can be a telltale sign that it’s an area you should investigate.

Number one reason why people buy penny stocks is to make money by selling them at a higher price later on.  Usually that is done on the stock exchange, but some stocks are so thinly traded, closely held, or financial unstable they don’t meet the requirements of becoming part of the stock exchange and therefore can’t be traded on the stock market. They are traded on pink sheets, which is via a mostly unregulated system of broker to broker trading.

Anyways, more on Pink Sheets later.  Penny stocks are irresistible for some traders, in the sense that the belief that a penny stock has so far to go upwards, and they’re so cheap, the potential for making lots of money is very clear to some people.

Some people buy penny stocks because it’s a hobby to them.  They enjoy the risk of playing the stock market but minimize that risk by only buying penny stocks.

Others buy penny stocks because they think they have insider knowledge of a company or an industry that gives them an edge.  I guess this would come under reason number one: to make money.

Some traders buy penny stocks because it makes them feel they’re on the cutting edge.  They’re not missing anything before it goes big if they invest while it’s still a penny stock.

Reason Number Five: people want to diversify their stock holdings and get one or a few risky but potentially hugely profitable stocks in the works with their other types of investments.

There you have it.  Now you are ready to start learning about penny stocks for dummies and decide for yourself if you’re cut out for investing in penny stocks.

A penny stock is nothing special, no different from other stocks that may be out there, except the price per share is low.  Penny stocks are cheap stocks, in a nutshell.  But in the investing world, nothing is ever simple, so cheap can have different meanings, depending on who you are.

A penny stock is one whose price per share is less than $10, or less than $5 or less than $1, according to different sources like the Wall Street Journal, Investopedia, and the Motley Fool, three reputable sources for stock market and investing information.

So penny stocks are cheap…but in the world of investments, a low price doesn’t always mean a good bargain.  A company’s stock can be valued at a penny stock price of $.54 per share, but if that company has crummy financials and appears to be going nowhere, it isn’t that cheap.  In fact, a company’s shares can even be overvalued at that price.  Just because something cost less doesn’t mean it’s a good deal.

Low price isn’t the only criteria.  Everything at the Dollar Store is cheap, but is everything worth $1?  Will some things from the Dollar Store become useless after just one week?  In those cases, you would have to buy another, so the price of $1 doesn’t really get you too far.  A dollar a week is more expensive than a $10 item that lasts 6 months.