Putting your money on companies with big market capitalizations is often touted as one of the safer ways to invest in stocks. After all, these blue chips and mega cap companies are generally stable, secure, and are well-known industry leaders. They are traded on major exchanges such as Dow Jones and Nasdaq and are widely covered by the media. Thus, investors can easily get their hands on a wealth of corporate information about these companies. Clearly, playing with the big boys in the stock investment arena has its perks.
For the stout-hearted and adventurous investor though who can handle much higher risks, micro cap companies are worth looking into. Micro caps, also known as penny stocks, have market capitalizations of $50 million to $300 million although some companies can have as low as $6 million in tangible assets. They often trade for less than $5 per share but this range fluctuates depending on market performance. Penny stocks could outperform large and small cap stocks by as much as three percent. Because of their low stock prices, these stocks are quite attractive to retail and novice investors.
Micro cap stocks are traded on the Over-the-Counter Bulletin Board. While companies listed in the major exchanges need to meet minimum requirements such as net assets and number of shareholders, penny stocks are not subjected to any listing standards. The Securities and Exchange Commission requires micro cap companies to file financial reports except for those with less than $10 million in assets. These are helpful sources of information for investors although the accuracy and timeliness of the reports could at times be disputed.
Micro cap stocks are generally not covered by mainstream media and analysts which makes it difficult to obtain information about these companies. Investors must then do their own research. Relevant factors to look into are the 52-week high/low trading range, the price/earnings multiple, and the net profit and cash flow. Note also if the company files its financial statements on time and on a regular basis.
Most companies in the micro cap range aren't raking in major earnings yet and may take a long while to do so. The key is to study a company's business model and to be aware of any potentially marketable product or technological innovation that it plans to launch into the market.
Investing in micro caps requires a lot of effort in research and patience in waiting for the company to develop. Penny stocks have relatively low liquidity and as such, cannot be sold quickly to minimize losses should things go wrong. A lot of micro cap companies also tend to have short life spans and could fold up anytime.
The market of penny stocks is also teeming with fraudsters who illegally profit from unsuspecting investors. Unscrupulous brokers would buy stocks from a micro cap company at very low prices and re-sell them with an outrageous mark-up. Some micro cap promoters also create hype about a certain company to start a buying frenzy and increase the stock price. The overvalued stocks would eventually plunge back to its penny price once the hype is over and consequently wipe out the investors' money.
Related Articles
Misconception of Stock Market and Shares
By: Ponn Nac | 23/06/2008 | Investing
Quite surprising that till now alot of people still do not know the basic meaning and the difference between the ''Stock Market And Shares'' while some people believe that this above forms of transactions belongs to the eminent/aristocratic class of people in the society. Even till this modern times yet some people are still lacking behind of multiple opportunities in the Stocks market, Shares, Equity, Bonds, Futures, and other financial/security form of transactions.
Data Point to a Microcap Resurgence
By: Greg Guenthner | 08/07/2008 | Investing
Those who follow small-cap stocks like to say that if the Dow sneezes, small companies catch the flu. This little adage is actually quite accurate. Since the Dow failed to hold onto its new highs in summer 2007, the panic that proceeded reverberated down to the tiniest stocks on the market.
Basics Stock Investment Knowleadge for Beginners
By: Ponn Nac | 23/06/2008 | Investing
To invest into stock market or other securities is quite a very critical decision every investor should note before taking a step into ''The Bull Market'' I choose to call it ''The Bull Market'' because, the benefits and profits in the stock market is quite enormous. The stock market is the only business transaction that its resource is yet untapped, you stand a great chance of profiting unlimitedly in trading stock.
Capitalizing With Penny Stocks
By: Greg Guenthner | 08/07/2008 | Investing
Back in the 1940s, it would have been nearly impossible to find a true penny stock. That all changed in 1971, with the creation of the National Association of Securities Dealers Automated Quotation system (NASDAQ). This is now the home of thousands of penny stocks.
The Stock Market and Its Profits Potentials Compare to Other Investments
By: Ponn Nac | 23/06/2008 | Investing
The stock market investments has proving to yield more profits better than other financial investments in the financial market investments.
Are you a Technical or a Fundamental Trader
By: anna coulling | 14/01/2007 | Investing
There is an enourmous difference between trading as a technical trader or one who uses fundamental data. It is critical that you understand the benefits of both, and how you can use both to develop a trading style.
How the Financial Markets Really Work
By: anna coulling | 14/01/2007 | Investing
The article provodes an insight into how the markets work from an insiders viewpoint. If you are trading or investing, you need to understand how the professional players ad market makers use news and gossip to manipulate prices. If you understand how they play, you can use this to your advanatage by buying when they buy, and selling when they sell.
The Danger of Inflexible Enterprises
By: Geoff Gannon | 28/04/2006 | Non-Fiction
A value investor discusses the dangers posed by investing in inflexible enterprises.
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
5 reasons why you should buy gold?????
By: arllyn | 15-07-2008
5 reasons why you should buy gold?????
I need to find the name of a company, I have the ...
By: Jubert Lowe | 15-07-2008
I need to find the name of a company, I have the address just want to know where to go online.
Jack drummy or drum the illustrator
By: Alan tremain | 15-07-2008
I am trying to find a person who was a member of the ancient and honorable artillery and an illustrator by the name of jack drummy, or drum
What oil company is paying a special dividend in ...
By: Rene | 15-07-2008
What oil company is paying a special dividend in the next few weeks
401K in defunct business rollover to IRA
By: sarahb | 14-07-2008
Company where my 401K is went out of business and I'm having difficulty getting the plan administrator and the investment company to allow me to rollover my 401k to an IRA with another investor. I am being told by the plan administrator the investment company may require a percentage of my 401k as a surrender charge but don't say how much. Is there an IRS code that allows them to do that for company's that dissolve? I suppose the investment company wants to keep my money but I'm not comfortable with them having it. Please advise.
I ben doing rech for about 2 to 3 years now.best ...
By: seikou | 14-07-2008
I ben doing rech for about 2 to 3 years now.best business but we do not have a found to start it I am talking about millions a years business. if your have found and intresting to invest it with me.you can contact me at 646 234 2215 or email at askoma135@aol.com everything is lg.
Q&A Powered by:
Latest Investing Articles
What is the TIC: Subscription Questionnaire?
By: Kathryn Landry | 24/07/2008
A TIC: subscription questionnaire is a very important part of the TIC subscription process. There are a few steps involved in the process, including the TIC: subscription questionnaire, which will be discussed in more detail here.
Learning About the TIC: Subscription Risk
By: Kathryn Landry | 24/07/2008
TIC investments are investments that essential give a person ownership of a piece of large, institutional grade property and a sharing of the income among one or more other people.
Learning About TIC: The Non-Recourse Loan
By: Kathryn Landry | 24/07/2008
It is important to understand something before getting into it, especially when it comes to your finances. TICs are one important subject here, and a TIC is essentially ownership of a piece of a large, institutional-grade property and sharing of the proportional income.
The Importance of Understanding TIC: Tenants
By: Kathryn Landry | 24/07/2008
If there is any issue related to the TIC investment that is important to understand, it is the issue of the tenants involved. TIC: tenants are the persons involved with the investment, and when two or more people own property together but are unmarried, they are considered as TIC: tenants.
TIC: Tenant in Common Association (TICA) What They Can Do For You
By: Kathryn Landry | 24/07/2008
If you are like most people you probably have no idea what TIC, or Tenancy in Common, is or what TICA is. TIC: Tenant in Common Association (TICA) is a trade association that serves common owners of property, or in more plain terms it is an association that protects the rights of multiple owners of real property.
Company Formation Services
By: Lizzi | 24/07/2008
Shareholders only need to meet financial obligations of any unpaid shares, which is a rare situation.
Business Incorporation Services
By: Lizzi | 24/07/2008
This is true regardless of whether it is a limited liability company or a corporate.
Why Invest in Property in Turkey?
By: Derek Both | 24/07/2008
Have you ever considered investing money in Turkey? It is slowly growing to become a very popular investment destination, for the country has a very high growth potential.
Finance 
