How to Research Penny Stocks
Penny Stock Research
If you’re working with a broker or an investment adviser, you can ask your investment professional if the company files reports with the SEC and to get you written information about the company and its business, finances, and management. Be sure to carefully read the prospectus and the company’s latest financial reports. Remember that unsolicited e-mails, message board postings and company news releases should never be used as the sole basis for your investment decisions.
You can also get penny stock information on your own from these sources:
From the Company: Call and talk to the company directly to get the financial statements. You may also be able to talk to someone who is most knowledgeable about the company. Ask the company if it is registered with the SEC and files reports with them. If the company is small and unknown to most people, you should also call your state securities regulator to get information about the company, its management, and the brokers or promoters who’ve encouraged you to invest in the company.
From the SEC: A great many companies must file their reports with the SEC. Using the EDGAR database, you can find out whether a company files with the SEC and get any reports in which you’re interested. For companies that do not file on EDGAR, check with the SEC’s Public Reference Room to see whether the company has filed an offering circular under Reg A.
From Your State Securities Regulator: We strongly urge you to contact your state securities regulator to find out whether they have information about a company and the people behind it. Look in the government section of your phone book or visit the website of the North American Securities Administrators Association to get the name and phone number. Even though the company does not have to register its securities with the SEC, it may have to register them with your state. Your regulator will tell you whether the company has been legally cleared to sell securities in your state. Too many investors could easily have avoided heavy and painful financial losses if they only called their state securities regulator before they bought stock.
From Other Government Regulators: Many companies, such as banks, do not have to file reports with the SEC. But banks must file updated financial information with their banking regulators. Visit the Federal Reserve System’s National Information Center of Banking Information site at www.ffiec.gov/nicpubweb/nicweb/nichome.aspx, the Office of the Comptroller of the Currency at http://www.occ.treas.gov/, or the Federal Deposit Insurance Corporation at www.fdic.gov.
From Reference Books and Commercial Databases: Visit your local public library or the nearest law or business school library. You’ll find many reference materials containing information about companies. You can also access commercial databases for more information about the company’s history, management, products or services, revenues, and credit ratings. We cannot recommend or endorse any particular research firm, its personnel, or its products. But there are a number of commercial resources you may consult, including: Bloomberg, Dun & Bradstreet, Hoover’s Profiles, Lexis-Nexis, and Standard & Poor’s Corporate Profiles. Ask your librarian about additional resources.
From The Secretary of State Where the Company Is Incorporated: Contact the secretary of state where the company is incorporated to find out whether the company is a corporation in good standing. You may also be able to obtain copies of the company’s incorporation papers and any annual reports it files with the state. Please visit the National Association of Secretaries of State website at http://www.nass.org/ for contact information regarding a particular Secretary of State.
From a Penny Stock Newsletter: You can review the penny stock research from a good penny stock newsletter, and follow up on their recommended companies with information from your broker, and what you’ve gathered, from the suggested sources listed above. By doing all of these you can narrow your selections for buying penny stocks and do so with more confidence in your well research decision.
Caution: If you’ve been asked to invest in a company but you can’t find any record that the company has registered its securities with the SEC or your state, or that it’s exempt from registration, then I’d pass on this company. You can also call or write your state’s securities regulator or the SEC immediately with all the details to see if the company is legitimate.
Buying Penny Stocks
