Blog : Find Top Penny Stocks with These Parameters

by Peter Leeds on October 12th, 2016

As promised, here are some of the parameters to set for an effective stock screen when searching for penny stocks. Of course it all begins with visiting a good stock screener, such as the online tools and resources which we mentioned in our recent YouTube video.

Regardless of which screening tool you utilize, the parameters which we've found to be the most effective when searching for up-and-coming penny stocks will be identified below.  Keep in mind that this is just what our team has found to be the most effective in terms of finding high quality low-priced investments, and screeners should just be used as a first step in a much more elaborate and lengthy analysis process.

Typically your stockbroker will have a good screener, plus there's free online ones such as that which is provided by Google Finance, and even some niche sites such as FinViz.com.  The latter is one of our favourites, since it gives you the most technical analysis control.
 

At PeterLeeds.com we in fact use several different screeners, trying to generate results which cannot be provided from any one specific tool or service. We may run the initial screen through our broker, and then drill down through FinViz.com, and then usually use a third screener through a paid site.

One of the problems within FinViz.com is they do not allow you to isolate Bulletin Board stocks, so you typically look at a list which includes both shares which trade on the Dark Markets, as well as those which are listed upon the NYSE, NASDAQ, and AMEX.

Some screeners come with your brokerage account, others are available if you're willing to pay a small fee, and still others are free online.  Regardless of which you are using, one of the first parameters you should set is the share price.

If you do a screen for stocks trading at five dollars per share each, or less, you will have a few thousand results returned to you. This will weed out any of the investments which trade for $5.01 per share or more, leaving you only with (technical) penny stocks.

Everyone's screening parameters should be different.  Your final settings will be based on the specific industry you are trying to target, the fundamentals which you deem to be important, and the effectiveness of your previous screens.

As well, should take into account types of businesses you understand, and the company's operational situations which you want to target. For example, are you looking for shares which are profitable, or those which are almost profitable and quickly approaching that point, there's something different than that entirely.

As well, there is no right or wrong screen setup.  It all comes down to the types of results you're looking to achieve, and at the end of the day, the types of results you actually achieve.

However, we'll tell you about one of the potential setups you could use that we have found to be quite effective with penny stocks:

• Price per Share:  $2.00 to $3.50
• Market:  Bulletin Board, NASDAQ, NYSE, AMEX
• Traded On the Most Recent Trading Day
• Market Cap:  Minimum $50 Million
• Average Volume:  Minimum 50,000 shares/day
• Short Interest:  Less than 10% of Outstanding Shares
• Industry:  Depends on What We Are Looking Into at That Point
• Eliminate:  China-Based Corporations
• Eliminate:  Holding Cos, Preferred Shares, Warrants
• Eliminate: Trusts, ETFs, REITs
• Eliminate:  The 5 Industries We Always Avoid
• Eliminate:  Any Shares You Heard About for Free
• Institutional Ownership:  Over 20%
• Insider Ownership:  10% to 39%
• Revenue Growth:  Minimum 9% per Year
• Gross Margin:  Minimum 15%
• Forward P/E:  Under 40.0
• Quick Ratio:  Minimum 1.5

This would represent our first step.  We then would go through the results one by one, looking deeply into each aspect of what we feel are the best penny stocks.  After watching the underlying companies, we then perform technical analysis to identify the most opportune buying prices and timing.

The penny stocks which "survive" our preliminary screening and review are then profiled at www.PeterLeeds.com.