Good Penny Stocks to Invest in 2012

Most investors enter the stock market with a hope to make huge profits in a very short period. Though some of them succeed, many others fail terribly and end up losing significant sums of money. There are many things which one needs to take into account, while trading in stocks, especially penny stocks. Penny stocks belong to those companies which are trading, at very low prices. Most of the time, common or retail investors are unable to buy shares of front line companies, which trade at very high prices. This attracts them to shares trading at a small price. Moreover, the huge gain in penny stocks, in a single trading session, adds to investor interest. However, this itself can be the biggest mistake for any investor, who wishes to make money in the market. A stock trading, at a small price does not mean that it is cheaply valued, as compared to other stocks, trading at higher prices. One needs to take into account factors such as net profit ratio, gross profit ratio and earnings to decide whether to buy a particular stock or not.

However, there are some penny stocks, where there are some fundamental reasons for investors to be interested. As an intelligent investor, you are supposed to find these stocks and track them, almost daily, to study chart patterns carefully. The following are the points to consider, before you finalize good penny stocks to invest in 2012.

Aim and Past Track Record of the Management
If you wish to know what are good stocks to invest in 2012, then you should ask yourself what is the aim of the management of that small company you are interested in. You should also study the track record of the company management and see whether they were able to achieve the growth and expansion they had promised, in meetings with shareholders. Study the market demand for the idea, service or product, being provided by the company.

Valuation
While selecting good penny stocks to invest, the prime worry could be the valuations. The market has run down considerably in the past few months and most penny stocks are highly volatile. The fear of a free fall cannot be ruled out at this stage. A general observation says that penny stocks fall more than large stocks in a bad market. So, be careful before you plunge into them. Decide your safety margin while investing.

Future Growth Prospects
Mot penny stocks belong to those companies, which have small businesses and not much cash on the balance sheet. With high debt borrowed for doing business, the outflow of money, in the form of interest payments is huge. Promoters of such companies pledge their holdings with banks and financial institutions to raise money. In case the business does not grow and earnings are not satisfactory, promoter holdings in the company can go down, as lenders would become the owners of the pledged shares and this is not good for the future of the company. So, always choose a firm having free cash flow and surplus liquidity for investment, while dealing in penny stocks. You should be fully convinced of the business model of that company and make sure that it is sustainable, whatever may be the state of the economy, as a whole.

It's all about Timing
Knowing when to book your profits is the key, when dealing with highly volatile penny stocks. Greed needs to be put on a leash and you should let logic dictate decisions. When you find that a penny stock has realized its 'true value', sell it to book profits. Learn when to let go!

Ideal Penny Stocks Investments
The following are the good penny stocks to watch out for in 2012:

• PostRock Energy Corporation
• Abraxas Petroleum
• Hercules Offshore
• Gastar Exploration
• Advanced Semiconductor Engineering
• Tengasco Inc.
• Acorn Energy Inc.
• ClickSoftware Technologies Ltd.
• Sprint Nextel
• Openwave Systems Inc.
• Sirius XM
• MEMC Electronic Materials
• Internet Initiative Japan Inc.
• Samson Oil & Gas Limited
• American Software, Inc.
• U.S.Airways Group
• MEMC Electronic Materials

If you are thinking of the best stocks to invest in 2012, then you should definitely consider the large cap and mid cap stocks and have small portion of investments in penny stocks. A well planned portfolio is the secret behind the success of top stock market players. Think over this, and take the right decision. Bonne chance!

DISCLAIMER: This article is just for reference purposes and does not recommend any stock market transactions.