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How to identify potential penny stocks


Imafidon Adonri. PHOTO:

Imafidon Adonri. PHOTO:

Penny stocks in the capital market parlance are equities with relatively lower prices, in which investors can make money quickly in terms of capital appreciation or better returns in terms of dividend or bonus issues.

People are generally showing interest in penny stocks because of their relatively lower prices.

Some investors are buying in anticipation of improvements in their status and better yields in the nearest future. Others might be buying these stocks due to expert advice that their future is bright

People are more interested in penny stocks nowadays because of their lower prices. Investors can afford to buy more even with little money.

Those who are patronising the penny stocks are buying into the future of these companies. Some shareholders are now proactive. Their investment advisers guide some on the fact that the future would be bright for these companies.

One-reason penny stocks hold good attraction to investors is the potential of earning great returns on investment in terms of capital appreciation. For example, it is easier for a N1 stock to rise to N2 or gain 100 per cent in price appreciation than, say a stock like Nestle trading at a price of N820.

Again, with the same amount of money to invest, you are most likely to acquire more quantities of low priced stocks than you would get of a high priced one.

However, before investing in a penny stock, it is proper to calculate relative prices rather than simply looking at the absolute price. The true price of a stock is ascertained by the period of time it will require for a price growth to cover the investment in that stock.

Also, while it can be profitable to buy penny stocks especially for retail investors with small to moderate investment capital, doing so requires caution and careful analysis as cheap does not necessarily translates to value.

Some of the attractive penny stocks in the market currently are African Prudential, United Capital, Fidelity Bank, NEM insurance, Continental Reinsurance, AXA Mansard and RakUnity Petroleum .

The Managing Director of Highcap Securities, Imafidon Adonri explained that these penny stocks are performing very well, paying good dividend and have potentials to even perform better in a nearest future.

He, however, advised investors to identify companies that have potentials of benefitting from new economic policies such as the agro allied firms before buying the stocks.

“Currently, penny stocks are good but I advice investors to look at the direction of the Nigerian economy. They should identify firms that can benefit from new policies that can drive the economy. These companies are both large and small companies.”

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