They are risky as many do not have information required by SEC and the major exchanges. They are traded over the counter, OTC. They cannot be shorted (and most likely you do not want to do so even it was allowed). Pier 1, Ford, American Airlines and many others were all penny stocks. Expect one winner for several losers. However, the total profit could outpace the total loss if the strategy is properly implemented. Do not expect to be rich overnight. You can buy 5000 shares at 1 cent each or one share of Apple (in May 2013). When this penny stock moves up to 2 cents, you make 100%. This is not the reason to invest in penny stocks but it shows they’re volatile. Here are some good candidates. • Established foreign countries such as Nestle and Sharp. They want to avoid the expensive legal procedures and filing information periodically. • Fallen angels. They are delisted due to low performance and /or the stock price falling below $1. When they work around their problems, the stock prices would appreciate many times. • Companies with new products such as a new technology or a new drug. They are moving up from development to the market phase of the product cycle. They may be acquired by larger companies. Recent examples are the e-cigarette are companies involved with 3D printers. • New companies with quality products and/or technology. • Some could be hidden gems as no analysts follow them. Updated: 9/2014. 56 pages (6*9)