| The stock market offers several kinds of stocks | | | | to describe a penny stock include nano caps, |
| with one of the most popular being penny stocks. | | | | microcap stocks, and small caps. Investors |
| It is difficult to discuss all of the types of stocks | | | | considering penny stocks have to evaluate their |
| in just one article, but we will address several | | | | risk tolerance. Many consider penny stocks risky |
| including penny stocks and small caps as well as | | | | and speculative. |
| others. | | | | Growth stocks are stocks that increase in value |
| The type of stock an investor invests in depends | | | | (earnings growth, market capitalization, price) and |
| on their risk tolerance. Some investors prefer | | | | yield a high return on equity, known as ROE. To |
| individual stocks, some prefer mutual funds. Some | | | | calculate ROE, divide the company’s net |
| investors prefer Dow stocks. Penny stocks can | | | | income by the company’s equity. During |
| be risky and each investor has to decide on their | | | | some years growth stocks do well, in other years |
| risk tolerance level. | | | | value stocks perform better. Generally, for a |
| Value stocks are a popular type of stock | | | | stock to be in the growth stock category, |
| category for investors to screen. Value stocks | | | | analysts expect to see at least 15 percent return |
| are those stocks that trade at a low price relative | | | | on equity. |
| to its fundamentals and considered undervalued | | | | Small cap stocks are known popularly as small |
| by value investors. Some characteristics of a | | | | caps. These stocks are a popular stock market |
| value stocks include a low price-to-book ratio, high | | | | segment for stock research by investors. Small |
| dividend yield, and/or low price-to-earnings ratio. | | | | cap stocks are stocks of companies with a |
| Fundamentals include dividends, earnings, revenue, | | | | market capitalization of less than $1 billion. |
| balance sheet items and other. Benjamin Graham | | | | Microcap stocks are stock of companies with a |
| and David Dodd are credited with pioneering value | | | | market capitalization of less than $250 million. |
| investing. Value investing is one type of stock | | | | It is important to understand market capitalization. |
| investing for those looking for bargain stocks and | | | | Most new investors look at the stock price, but |
| cheap stocks. | | | | the important number to look at is market cap. |
| Penny stocks are common stocks that trade for | | | | Market cap is a measurement of corporate or |
| less than $5.00 a share and are traded over the | | | | economic size. It is calculated by multiplying the |
| counter (OTC) through quotation services such as | | | | number of shares outstanding times the share |
| the OTCBB or the Pink Sheets. Penny stocks | | | | price of a public company. |
| generally have market caps under $500M, trade | | | | Technology stocks are generally traded on the |
| under $5.00 per share and are considered | | | | NASDAQ exchange, but can be traded on several |
| speculative, particularly those that trade on low | | | | other exchanges. There are several technology |
| volumes over the counter. There are several | | | | stock sectors including the Internet, Cable & |
| stocks that trade on the NASDAQ and AMEX | | | | Satellite, Computers & Chips and others. |
| that trade under the $5 level as well. Other terms | | | | |