Beware of Biotech Penny Stocks
Biotech penny stocks, by their very nature, are not good investments. The only way to play biotech penny stocks is short-term, in my opinion, getting in on dips and riding the volatility.
Sure, once in a while (meaning less than 10%) these penny stocks can see out their business plan to it’s conclusion. Very, very rarely.
Usually what happens is that the stock comes up with a good story, raise a ton of money to do the research, then go about spending that money as quickly as they can. So, now this penny stock is running out of cash, but at least the stock is many millions of dollars further along in their research.
Their next step for the biotech penny stocks is to raise more money. After all, they’ve already sunk millions! “Now we’re even closer to this big biotech breakthrough!”
So, the penny stock raises another few truckloads of cash. The problem with this is they raise the money through issuing more penny stock shares. That means the shares you already own become worth less (not worthless… Worth Less). There are also a few thousand more interested parties who are now looking to get a piece of this penny stocks profits. Before long, the stock has sold itself so badly, and spent so much money, that even if they were to get that big breakthrough, the rise in share price would not be enough to even bring the original penny stock shareholders back to their break-even point.
In the few instances that I have selected a biotech penny stock for subscribers of Peter Leeds stock newsletter, it was only AFTER the underlying biotech penny stock had a downside over-reaction.
By this I mean the penny stocks share price plummeted 30% or 60%, when it should have only fallen 15% or so. (Over-reactions to negative news in biotech penny stocks can be opportunities). Often times, when a biotech penny stock gets good news, the penny stock’s price goes way to high, and when they get bad news, it goes way too low.
I would go into more depth explaining my philosophy on biotech penny stocks, but I think I can sum it up in a few words: “I don’t like them.”
There are many better places to make easier, less-risky profits in penny stocks in my opinion. The first step is to lean towards fundamentally solid penny stocks. Generally, this does not include biotech penny stocks, or highly speculative stock engaged in the research and development industry.