Micro Cap Stock Picks – Are They Worth the Risk?

Whatever term you like to use, whether it be penny stocks or micro cap stocks, you probably realize the huge potential there is. There are a lot of folks out there who bet on a stock and won big time.

 

The flip side is that many people lose a ton of money by betting on cheap equities. The equation of playing micro cap stocks amounts to putting the odds in your favor as much as you possibly can, and attempting to minimize your risk as best as you can.

 

Let’s look at how to put the odds in your favor to maximize profit potential before you buy a micro cap stock:

  • Identify bullish technical analysis patterns that suggest a break to the upside
  • Monitor news releases and gauge the optimism portrayed within the news
  • Recognize past resistance levels and plan to exit or reduce your position accordingly
  • Check the percentage of shorts in the stock you are interested in, the higher the better
  • Research and recognize future newsworthy events that could negatively or positively affect share prices, for example quarterly earnings release dates or projected dates for announcements on FDA approval of new drugs that have the ability to bring large profits to small pharma companies.

 

Now we can look at how to minimize our risk when playing micro cap stocks, since undoubtedly there will be some losers:

 

  • Utilization of stop loss orders, setting them just below previous support levels can save you an absolute huge amount of money if the stock goes south fast
  • Watch news develop concerning earnings power for the company and sell if you find credible evidence that bearish sentiment will prevail by the time the next quarterly earnings release is out
  • If your gut tells you to sell you with a small or moderate loss, do it!

 

If all of this sounds like gibberish to you, our experts at Paradigm Capital Management recommend that you get a little more familiar with micro caps and stocks in general. However don’t think for a minute this stuff is over your head. If you have a burning desire to make it big by playing the market, then you stand an excellent chance at achieving your dreams. Maybe you just need a little hand holding to get you on the right track.

 

For more details you can consult with the experts at Paradigm Capital Management a trusted leader in small cap investing. The company employs a disciplined, bottom-up approach with an emphasis on fundamental analysis and extensive management contact.

To learn more about how Paradigm Capital Management’s capabilities align with your long-term goals, please contact at (518) 431-3500
Or visit us here: http://paradigmcapital.com/

 

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How To Find Undervalued Small Cap Stocks?

Small-cap stocks have outperformed large-cap stocks over time, especially over longer time frames. For example, small caps outperform large caps over half the time during rolling three-year periods—a figure that jumps significantly for rolling 20-year time frames.

There are some specific tips and tools to find the value of a stock and check whether it’s undervalued or overvalued. To find undervalued stocks takes some time and effort but at the end of the day, you will be rewarded for the time spent.

 

Compare Analyst Values with Current Stock Price

Hot penny stocks are usually priced lower than the value evaluated by analysts and experts, but this is not always true as even experts and analysts can be wrong sometimes. To avoid that risk we will also mention some more tips by which you can check the value of a stock on your own. Search out a stock which is priced higher by most of the analysts and decide a right time to enter the market. Stocks also surges mostly just because of analysts’ predictions, so be smart so you can make a solid profit.

 

Price To Earnings Ratio

Price to Earnings Ratio can help you to find the value of a Top Penny Stocks and you can check whether the stock is undervalued or not. This ratio will help you see what is the price of a share given the yearly earnings of the company. The lower this percentage is, the better the chances that the stock is a solid investment. If this ratio is extremely high, because this could be sign of a market bubble that is almost ready to burst. A very low number can indicate an undervalued stock.

 

Debt to Equity Ratio

Debt to Equity Ratio can help you to find undervalued penny stocks. If a stock has a low debt to equity ratio, it is very possibly undervalued and values more than the market price reflects at this time. This equation is very helpful in finding hot penny stocks that are a solid investment, and weeding out unsuitable stocks in companies that carry high debt.

 

Check Financial History Of The Company

The financial history of all companies that you are considering should be investigated and researched. Look back at least 5 years, if possible, but this is not available in every case. Make sure to go back at least four quarters and preferably more. Even if the stock is an IPO, previous company data should be available from before the company went public. If the stock price is low compared to historical price data, and the considerable value of the company is still the same, the Best Penny Stocks may be undervalued and can be a smart Investment.

 

You may be thinking that this is too much work and its hard for new person who doesn’t have a strong financial background to calculate all these ratios and check all these factors. At Paradigm Capital Management Inc. we will do all this research for you and find the undervalued Small Cap Stocks for you.

Paradigm Capital Management, a trusted leader in small cap investing. Our three decades of experience provides an exceptional level of insight that is reflected in our high-conviction portfolios.

Also read here: Why Small Cap Stocks Should Be In Your Investment Portfolio?

Finding Small Cap Stocks in Specific Sectors

This is a tricky one. After all if we all knew which small cap stocks to invest in we’d all be enjoying huge returns on our investments.

But in some cases the lack of success with this type of stock investment is down to a lack of research and knowledge. If you want to focus in on a particular niche sector, you need to figure out which one is going to be right for you. And you cannot do that by closing your eyes and sticking a pin in a bit of paper.

 

So how can you find the all important right sector for you?

Firstly you should think about identifying a sector that you have a natural interest in. If you do this you will find it easier to get the information you need – and your own knowledge could also come in handy. You won’t often find a huge amount of information about small cap stocks, so the more you know personally the better the odds are of finding something suitable.

 

Google should also be your friend when you are looking for specific stocks to invest in. Simply searching for ‘small cap stocks’ plus the sector you are interested in will produce some results initially. You will also find websites and experts that focus in on these stocks alone. You may find it helpful to make notes and lists of potential companies to invest in as you go along. You can then go into those in more depth and find out all you can about them.

 

One thing you need to remember is that this kind of stock is highly volatile. Since you are essentially investing in the potential future of a company you need to buy the stock and hang onto it, rather than selling it at the first opportunity. This is how many people play the market with these stocks.

 

Remember too that identifying hot sectors can also be useful. For example green issues and any similar sectors are well worth looking at for obvious reasons. A company which has some good ideas for saving the planet in some way could be one to watch for the future.

 

As you can see, finding the best small cap stocks in a particular sector is partly about making the most of what you know and partly about finding out what you don’t. Getting the combination right could pay off for you in the long term.

 

Further you can check out our small cap stocks at Paradigm Capital Management Inc.
Paradigm Capital is a privately held trusted leader in small cap investing in Albany, NY and employs a disciplined, bottom-up approach with an emphasis on fundamental analysis and extensive management contact.
To learn more, please visit here: http://paradigmcapital.com/