Displaying great interest in equities without looking at the risks involved is what makes penny stock a bad investment practice. This interest, however, needs to be managed. In the following article a few penny stocks have been discussed along with their risks and potential returns in future oriented sectors such as solar energy, nestle semiconductors, drones and electric vehicles.
What Are The Risks Associated With Penny Stocks
Penny stocks are assets of small firms whose market shares have less than 100 rupees, they are inconsistently traded and tend to suffer from significant price fluctuations. This makes them very attractive to many investors, however, if not valued correctly they may cause a great loss.
Caution Is Required With Penny Stocks For The Following Reasons
Extremely High Volatility: This is the most concerning characteristic of penny stocks, which have no price predictability achieving high growth overnight followed by an equally sharp drop in a matter of weeks or days which can happen overnight and without warning.
No Institutional Participation: The reason why massive companies are more stable is that they have the backing of numerous institutions, markets, and funds. However for penny stocks this is quite the contrary, a small amount of people have faith that the company will stick around in the long run.
Non Profitable Businesses: Majority of these businesses are operating in profitable industries, but the profit margins are razor thin so much so that most of these companies routinely post losses and turn on their profits occasionally.
Learning, Not Earning: Trading penny stocks must be seen as an educational attempt and not as a primary earning source. Only invest such amounts that you can afford to lose easily.
Future-Oriented Business Opportunities in Penny Stocks
Penny stocks in some future-orientated industries seem to have some potential despite the risk. Investors can learn from these companies about the type of market that is changing. The following are some areas/industries where it appears the penny stock might be fruitful:
- Semiconductor Sector
The development of technology people in today’s world is fully depended on the semiconductor industry. A number of small cap companies are into the business of designing or manufacturing semiconductors. For instance:
2500 crore rupees market capitalization must Chip Technology: This stock has experienced a price increase from an average of double digit stock prices to more than ₹230. Its expansion however, is reliant on little contracts and its profitability is not yet evident. Investors should regard the long-term strategy of the company as opposed to the price swings which occur within short time frames.
- Renewable Energy
There are good prospects in the renewable energy sector particularly in solar and wind power. All the countries are encouraging Green Energy a move which can be advantageous for the companies in this sector.
Orient Green Power: This figure is approximately 2000 billion rupees. It has also demonstrated poor growth. Its share price has skyrocketed at times when conditions have been favorable, but that has not been consistent.
Zodiac Energy Limited: Engaged in the production of energy through solar generators, this firm has transformed from a meager earning into a double digit returned firm. But even with this growth, it still remains a high risk to put investment because its small in size and institutional support is lacking.
- Ethanol and Sugar Based Businesses
The development of ethanol as a substitute fuel source has created new gateways to sugar and ethanol producing economys.
Bajaj Hindustan Sugar: It is because of presenting ethanol that this firm has been able to appreciate its share value from ₹20 to ₹34. Wherelse, ithas so many share price accelerations, it is under a known business group but the numbers are on and off.
- Drone and Electric Vehicle Technologies
With the constant increase in the number of drones and electric vehicles, these markets prove to be a wise investment for many years to come.
Rattan India Enterprises: One more big company working in a developing market with a focus on drone technology and electric mobility. Still, the stocks were failing because of sporadic wins of contracts.
- Air Taxi and Helicopter Services
There are some firms that are engaged on the operations of air taxi services, they’re not air taxi operating firms but they perform the tasks that are involved in the operations of ATV’s such as combined services for the taxi operation and heli-skiing.
Global Vectra Helicopter Limited: This company operates in the low market cap space of helicopters in India. Although the company’s market cap is under ₹500 crores, its services indicate growth in niche markets.
Key Strategies for Investing in Penny Stocks
With penny stocks, there are always disadvantages. However, by employing various strategies:
Do not Put All Your Eggs in One Basket: You may lose some initial investments. Yup, it takes a whole lot of time to comprehend the market, however, you get there eventually. An active portfolio wherein penny stocks alone are bought, works best.
Analyze Thoroughly: Avoiding losses is key, and panic selling when a company’s model, expansion plans or marketing strategies are not properly analyzed can trigger that Avoid sinking all your cash into miscellaneous probably a failing stupid company.
Use Reasoning & Not Emotions: Hate to say it, but feeling “broke” is significantly stronger than making a sensible reasoning, for almost all AI programs out there. It helps in justifying the potential risk of investing or pushing the value of a stock down.
Pay Attention to Changing Market Trends: This does not seem very knowledgeable nor wise, but hey, paying attention to the market is very useful, in fact, tracking the market regularly should be practiced.
Conclusion
It is self-explanatory that penny stocks are not all that reliable, profit focused is one thing, but shifting focus towards the learning aspect of the market is what will help you survive, assuming you plan on seeking the rewards moving forward. Investors looking forward towards futuristic businesses can locate numerous hidden opportunities across untapped sectors of the market. Penny stocks can be used as training wheels if earnings are not your goal and education is your end goal, nonetheless, caution needs to be practiced. Every future penny stock investor must baffled, but expectation and reason will go a long way and allow you to understand the market a bit better.
In the complex world of penny stocks, make sure to invest wisely. Keep yourself updated if you want to remain in the game.