Apply this checklist to see if your penny stock pick is ready for growth
When most people think penny stocks, they think of a company that trades at literal pennies a share. However, in this article I will be referring to penny stocks in the same manner as The Bowser Report--a stock that trades under $3 per share. The three examples I will be using are Bowser recommendations Riverview Bancorp Inc. (RVSB) and Enservco Corp. (ENSV), and a personal pick of my own Liquefied Natural Gas Limited (LNGLF), which I purchased and currently hold. Most growth portfolios consist of mutual funds and exchange traded funds (ETFs) in order to minimize risk. However, as The Bowser Report has said, you can minimize risk with penny stock picks.
To minimize this risk in growth stocks, I have included a small checklist that you must use when determining if a penny stock is suited for steady growth.
1) Is there an established upward trend?
The stock has a bullish trend if it consistently establishes higher lows. The Bowser Report originally recommended Riverview Bancorp in June 2013, when the company was trading at $2.30 a share. Here you can see the higher lows that RVSB has been posting for the past two years. The first two higher lows were a confirmation of the stock's upward trend.
2) Is the company financially stable?
The Bowser Report does this research for you to ensure the best possible chance of profit. However, if it's a relatively old pick, there could be good or bad financial updates, which the newsletter keeps you up-to-date on. An easy way to analyze their financial situation is by seeing if there is quarterly growth. From quarter-to-quarter revenues and net profits should increase, while debt should decrease. Enservco is a good example of this with its revenues increasing by roughly $6,000,000 over the past year, which is a great indicator of growth.
3) Will there be production or are there contracts that will still be active five years from now?
Production and/or contracts five years from now show that there is a future for the company and revenue will be consistently high. Liquified Natural Gas is the ideal example for this. Not only do they have two huge customer contracts until 2020, but they also have a new plant being built that will double their production capacity starting in 2018.
4) Is there room for expansion?
Capacity to expand is another indicator of potential future growth. If a company can expand, then by the very nature of expansion, it will be growing. As a result of this growth, the company's financials should ideally climb higher. Liquified Natural Gas is in the process of expanding to Canada and South America, providing a great example of expansion.
While these are the main factors to consider, not all of them are necessary in order to have steady growth. If you added LNGLF when I picked it, you would have a 2,000% gain in your growth portfolio by now. With RVSB and ENSV, you would have had a combined 1,400% in just two years. Of course, these gains are never guaranteed, but combining the checklist above with my research and The Bowser Report's research illustrates that penny stocks, when picked correctly, are ideal for a growth portfolio.