You've probably heard the rumors about the latest hot penny stock, and you may have wondered just what makes a hot penny stock hot. Well, generally that depends on who is providing the definition of a hot stock.
At the most basic level, a stock that increases in price rapidly, with lots of buyers/investors lining up to purchase shares, is a hot stock. Of course, there can be many reasons for these crowds of buyers. Perhaps a professional promoter has done an extremely good job of spreading the word, dubious though it may be, that a particular stock is taking off, and investors begin clamoring for a piece of the anticipated action. This, of course, appears to validate the promoter's information about the stock, and even more buyers join the crowd. Voila! A hot penny stock. You can still make money with such heavily promoted stocks if you time your purchase and sale right. Get into the stock at the early phase of the promotion and sell when other investors are eager to buy, and you could benefit from the rumor of a hot stock.
Or perhaps an obscure company springs up in a hot- or newsworthy- sector, such as recovery from hurricanes or other natural disasters, protection from biological threats or identity theft, or maybe video sharing. Such an unknown company situated in the right field can produce a stock offering that investors decide to love. Look for stocks in the biotech, VOIP, healthcare, homeland defense or internet sectors, too.
Other hot penny stocks come from companies that have bottomed out and are situated for a rebound, as long as these companies are fundamentally sound with good products and management.
What makes a hot penny stock hot depends on whom you ask. If you are serious about investing in penny stocks, it makes great sense to find a successful investor/advisor and follow his or her advice. That way, the only definition of a hot penny stock that matters will be determined by the amount of money in your account.
Rand Fletcher is a contributor to the website Make Money 17 Ways.
If you're ready to make money with penny stocks, see Rand's suggestions at
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