With online stock screeners you can enter specific data, like share price, market cap, sector, stock exchange, and so on. They return a filtered list of stocks that meet your criteria. They can reduce the universe of stocks to 10 or 20 high-quality penny stocks and boost your chances of success. When you select a parameter (for example shares between 1 and 5 dollars) the screener removes stocks that don’t meet these criteria.
Many free stock screeners can be found online. Online brokers have them too, although you can use those screeners only if you have an account with them. Some stock screeners concentrate on fundamental analysis while others focus on charts or technical data. You can also subscribe to more advanced stock screeners for a fee.
Filtering thousands of cheap stocks may seem overwhelming at first. You may want to begin with UncleStock.com or Trade-Ideas.com stock screeners, because those two allow filtering on OTC and Pink Sheet markets and Canadian stocks, which is very relevant for penny stock investing. Online stock brokers, like Interactive Brokers or thinkorswim offer stock screeners as well.
Specifically for penny stocks, you should choose the following criteria:
- Limit your search to US and Canadian penny stocks only, that are listed on major exchanges, like AMEX, NASDAQ, OTC-BB, and the Canadian TSX and TSX-V. If you can manage more risk, select Pink Sheets and over-the-counter stocks too.
- Avoid sectors that you aren’t familiar with. By limiting yourself to a few specific industries that you know, you will have greater perspective about corporate players and overall trends.
- Set a minimum price per share. For example, filtering out stocks with less than $1 per share, will probably give you higher quality penny stocks.
- Exclude stocks that are not liquid. Stocks with an average volume less than 100,000 shares a day are simply not good enough.
- Screening by company size is a good way to filter based on market capitalization. Eliminate businesses that are too small (worth less than $100,000).
- Set some fundamental criteria too. For example, you may choose to list only stocks that have a P/E ratio of 12 or lower.
Always adjust the data according to your trading performance and style in order to find the best penny stocks to buy. Also, keep in mind that stock screeners have their limitations. They can work only based on the parameters you entered, and they know nothing about the companies’ business practices, management effectiveness, competitors, major products, lawsuits, etc. Further analysis is needed for the companies that your stock screener produced.
If you select the parameters correctly you will easily eliminate a bunch of low-quality stocks. If you are still left with too many stocks, tighten your criteria. Your final list should contain no more than 20 good penny stocks.
Finding penny stocks that match your own trading style is a big part of successful investing. Use one or two screeners you like, so you always know which penny stocks promise the biggest profit.