Penny stocks are classified into different categories depending upon the time and the nature of their issuance. We need to put our message across to inform our readers for the different kinds of stocks available that could be traded as penny stocks.
1. New issues – Usually these are those penny stocks that are issued by companies that are recently young and new in the stock market. Firms that recently joined the stock market and looking to expand their capitals for investment in bigger projects, do not wait, and start issuing penny stocks. Some companies that you see as big giants nowadays might have in fact just started out issuing penny stocks at some point in time when they were just starting up.
2. Recovery shares – Who has not, in the entire world, especially in the US, with the collapse of Lehman Brothers and many multinational banks and companies have felt a pinch on their pockets due to the recent recession of 2008? Many companies have gone bankrupt that once were healthily listed in the top fortune companies. Who knew that an energy giant like Enron, and an investment firm like Lehman brothers with strong financial standings for decades would eventually disappear leaving thousands of jobless claiming for benefits? Many companies even though they have not gone bankrupt but witnessed a significant drop fall in their earnings that forced them to cut layers of people working for them. These companies now issue penny stocks that fall in the category of recovery shares to recover from recessionary effects of lower revenues. Shell companies are categorized as those firms having virtually no management structure and issuing recovery shares for the financial healings of themselves.
3. Defensive Shares – As the term implies, these penny stocks are those shares that tend to absorb the recessionary effects in times of recession and hard economic conditions. These are usually issued by those companies that withstand the booms and bangs of economic cycles with their products and services enjoyed throughout the years. Usually those firms dealing in fast moving consumer goods like food and beverage issue such types of shares having low level of risk associated with them.
4. Cyclical stocks – Now these are exactly the opposite of defensive shares. Unlike defensive stocks, these tend to vary in accordance with the economic cycle of the country. These shares would steadily change as the economic cycle changes. The best time for investment in cyclical penny stocks is during recessionary period when these stocks show huge potential of generating good income in the long run. Usually firms issuing these types of penny stocks are in the industry of transportation that prosper in times of booms and decline during recession.
Given the 4 most important and common types of penny stocks listed above, it is up to your discretion to invest the right way only after consulting a reputable financial advisor to earn a stable living in this field. This way you would get to know that right stocks that could earn you high profits with less risk. Keep in mind though that no matter how experienced or successful you are, losses are bound to happen without a doubt. It is up to you that you tackle these situations wisely so that you can minimize your chances of losses.
Penny stock trading is a risky investment and as Warren Buffet once said, “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1″. Good luck!