3 Reasons to Buy Penny Stocks Over Blue Chips
Penny stocks and blue chip stocks are two different types of investments that have different characteristics and appeal to different types of investors. Blue chip stocks are shares of large, well-established companies that have a strong track record of financial performance and stability. These companies are considered to be among the safest and most reliable investments, and they often pay dividends to shareholders. On the other hand, penny stocks are shares of small, relatively unknown companies that trade for less than $5 per share.
One of the main reasons why some investors prefer penny stocks over blue chip stocks is the potential for higher returns. Because penny stocks are generally riskier than blue chip stocks, they also have the potential for greater returns if the company performs well. Additionally, since penny stocks are not as well known as blue chip stocks, they may be undervalued, providing investors with an opportunity to buy in at a lower price and potentially see a higher return on their investment.
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Another reason why some investors prefer penny stocks is the ability to diversify their portfolio. Blue chip stocks are generally considered to be a safer investment, but they may not provide the same level of diversification as penny stocks. By investing in a variety of penny stocks, an investor can spread their risk across multiple companies, rather than putting all of their eggs in one basket. This can help to mitigate the risk of losing a significant portion of their investment if one company performs poorly.
In conclusion, while blue chip stocks are considered to be safer investments, penny stocks offer the potential for higher returns and greater diversification. As always investors should conduct their own research and consider their risk tolerance before making investment decisions. Taking all of this into consideration, let’s take a closer look at a few of the main reasons that investors choose penny stocks over blue chips.
3 Reasons to Consider Buying Penny Stocks in 2023
- Higher Average Volatility
- Lesser Known Companies Could Mean Long Term Potential
- Broader Market Exposure
Higher Average Volatility
Penny stocks are generally considered to be more volatile than blue chip stocks, which can make them a potentially better investment for certain types of investors. Volatility refers to the degree of fluctuation in the price of a stock and a higher volatility means that the stock’s price can fluctuate significantly within a short period of time.
One of the main reasons why the higher volatility of penny stocks can make them a better investment is the potential for higher returns. Because penny stocks are generally riskier than blue chip stocks, they also have the potential for greater returns if the company performs well. A stock with higher volatility can experience significant price movements in a short period of time, which can provide investors with the opportunity to make a significant profit in a short period of time.
Additionally, the higher volatility of penny stocks can also provide more opportunities for active traders. Active traders often look for stocks that have the potential for significant price movements in order to capitalize on these movements by buying low and selling high. Penny stocks, with their higher volatility, can provide more opportunities for active traders to make a profit.
Lesser Known Companies Could Mean Long Term Potential
Penny stocks, compared to blue chip stocks, are generally considered to be lesser known by the broader public, which can mean that they have a higher chance of long-term profitability. Blue chip stocks are shares of large, well-established companies that have a strong track record of financial performance and stability and are well-known by the public. On the other hand, penny stocks are shares of small, relatively unknown companies that trade for less than $5 per share.
One of the main reasons why lesser known penny stocks may have a higher chance of long-term profitability is that they may be undervalued by the market. Blue chip stocks are well-established and have a proven track record, which means that their value is generally well-known by the market. However, lesser known penny stocks may not have the same level of visibility, which means that their true value may not be reflected in their stock price. This can provide investors with an opportunity to buy in at a lower price and potentially see a higher return on their investment in the long run.
Broader Market Exposure
One of the main reasons why penny stocks have broader market exposure than their blue chip counterparts is that they are not limited to a specific sector or industry. Blue chip stocks are often in large, established industries, such as technology or finance, which can make them more susceptible to market fluctuations within that specific sector. On the other hand, penny stocks are often in emerging industries, which can provide investors with a wider range of opportunities across different sectors.
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As a whole, we find that penny stocks are based in many budding industries. This means that investors can gain the opportunity to invest in different companies, without the need for the large capital investment that comes with blue chips. While there are many advantages to investing in blue chip stocks, penny stocks can be a great choice for those looking to broaden their market exposure.
3 Good Penny Stocks to Watch in 2023
- COMSovereign Holding Corp. (NASDAQ: COMS)
- Buzzfeed Inc. (NASDAQ: BZFD)
- MicroAlgo Inc. (NASDAQ: MLGO)
Are Penny Stocks Worth Buying or Not?
In conclusion, investing in penny stocks can offer investors a number of advantages over blue chip stocks. One of the main advantages of penny stocks is the potential for higher returns. Due to their lower market capitalization and lesser known status, penny stocks can be undervalued and have the potential for significant price appreciation. This can provide investors with the opportunity to make substantial returns in a short period of time.
Another advantage of penny stocks is the potential for diversification. Penny stocks are not limited to a specific sector or industry, they can be found in a wide range of sectors and industries, providing investors with a broader range of opportunities across different markets. This can help to spread risk and potentially increase returns.
Penny stocks also have the potential to be innovators and can offer investors the opportunity to invest in emerging companies, at the forefront of new and exciting technologies and industries. These companies can be working on new technologies and business models that have not yet been explored in the domestic markets, providing investors with the opportunity to invest in something truly unique.
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Finally, it’s worth noting that investing in penny stocks is not without risk, and it’s important to conduct thorough research and consider one’s risk tolerance before making any investment decisions. It’s also important to keep in mind that past performance is not indicative of future results. With that said, for investors who are willing to take on more risk, penny stocks can offer a number of advantages over blue chip stocks.
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