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10-08-2023, 07:46 AM
If you are a fundamental investor, a cheap stock is one that is trading at less than the business value as determined by its fundamentals.
If you are a momentum trader, a cheap stock is one whose price is expected to rise and hence cheap based on the projected price trajectory.
What is a penny stock then? Technically a penny stock is one that is trading at pennies. But it does depend on where you are. For example, in the United States, the stocks that are traded at a price less than USD 5 are considered penny stocks, while in the United Kingdom, penny stocks are only the stocks that are priced below £1. In Malaysia, I would consider stocks less than RM 0.1 as penny stocks.
Penny stocks need not be cheap. From a fundamental investor perspective, if the business prospects had deteriorated such that it is lower than the “penny level” price, this is not a cheap stock.
Similarly, if the sentiments for a penny stock is such that prices are expected to trend even lower, then it is not a cheap “penny” stock for trading.
Now as to the question of which is safer, I think you are looking at whether the price of the stock you buy will go down (making it risky) or go up (making it a good investment). This has nothing to do with being a penny stock
For more insights into penny stocks read The ultimate look at how to invest in penny stocks
If you are a momentum trader, a cheap stock is one whose price is expected to rise and hence cheap based on the projected price trajectory.
What is a penny stock then? Technically a penny stock is one that is trading at pennies. But it does depend on where you are. For example, in the United States, the stocks that are traded at a price less than USD 5 are considered penny stocks, while in the United Kingdom, penny stocks are only the stocks that are priced below £1. In Malaysia, I would consider stocks less than RM 0.1 as penny stocks.
Penny stocks need not be cheap. From a fundamental investor perspective, if the business prospects had deteriorated such that it is lower than the “penny level” price, this is not a cheap stock.
Similarly, if the sentiments for a penny stock is such that prices are expected to trend even lower, then it is not a cheap “penny” stock for trading.
Now as to the question of which is safer, I think you are looking at whether the price of the stock you buy will go down (making it risky) or go up (making it a good investment). This has nothing to do with being a penny stock
For more insights into penny stocks read The ultimate look at how to invest in penny stocks