Why Penny Stocks Could Be Better Than Blue Chips
Penny stocks are often overlooked by investors in favor of blue chip stocks, but there are several benefits to investing in penny stocks that make them a compelling option for investors. Penny stocks are typically defined as stocks that trade for less than $5 per share, and are often overlooked because of their low stock price. However, the lower stock price means that investors can purchase a larger number of shares, which can increase their potential returns. Additionally, penny stocks have the potential to deliver much larger returns than blue chip stocks, due to their smaller market capitalization and higher risk.
Penny stocks are also more volatile than blue chip stocks, which means that they can experience significant price swings in a short amount of time. This can create opportunities for investors to make substantial profits, but it also means that investors need to be prepared for the potential for significant losses. Despite the higher risk, penny stocks offer investors the opportunity to invest in companies with strong growth potential, and the possibility of seeing significant returns in a relatively short amount of time.
Overall, penny stocks can be a viable option for investors who are looking for higher potential returns, and are willing to accept a higher level of risk. By doing their research and carefully selecting penny stocks to invest in, investors can tap into the potential benefits of penny stocks and achieve their financial goals. With this in mind, let’s take a look at the main reasons to invest in penny stocks over blue chips.
3 Reasons to Choose Penny Stocks Over Blue Chips
- Higher Chance of Short Term Profits
- Long Term Profits Could Be Possible
- Lower Cost Per Share Means More Opportunities
Higher Chance of Short Term Profits
Penny stocks, also known as small-cap stocks, are a type of stock that trade for less than $5 per share. They are considered to be a high-risk investment, but they also offer the potential for higher short-term profits compared to blue chip stocks. Blue chip stocks, on the other hand, are well-established companies with a solid track record and a long history of stability. These stocks are often seen as safer investments, but they also tend to have lower potential for short-term gains.
Penny stocks are attractive to some investors because they can offer a much quicker return on investment than blue chip stocks. This is because they are often priced lower, meaning that a small move in the stock price can result in a significant percentage gain. In addition, penny stocks are often less well-known and therefore less researched, which means that they may be undervalued and have the potential for a big payoff.
Another factor that makes penny stocks a potentially better choice than blue chips is the fact that they are often overlooked by institutional investors, who tend to focus on larger, well-established companies. This means that there is often less competition for these stocks, which can result in a more favorable buying opportunity for individual investors.
Long Term Profits Could Be Possible
Penny stocks offer unique opportunities for investors to achieve long-term profits in a way that is different from blue chip stocks. Unlike blue chips, which are typically large, well-established companies, penny stocks are often small and undervalued companies with significant growth potential.
One of the key factors that makes penny stocks a potentially better choice for long-term profitability is their ability to provide diversification to an investment portfolio. By investing in a variety of small, high-growth companies, investors can reduce the overall risk of their portfolio while also increasing their potential for long-term gains.
Another factor is that penny stocks are often underfollowed by institutional investors and analysts, which creates opportunities for individual investors to identify and invest in undervalued companies before the market recognizes their potential. This can result in substantial long-term profits as the value of these companies grows and their stock prices increase.
Penny stocks also offer the potential for higher returns compared to blue chip stocks, which typically offer modest long-term growth. This is because penny stocks are often operating in emerging industries with high growth potential, which can result in significant gains as the industry matures and these companies grow.
Lower Cost Per Share Means More Opportunities
Investing in penny stocks can offer investors more opportunities for profits due to the lower cost per share compared to blue chip stocks. While blue chip stocks typically trade at higher prices, penny stocks are often priced much lower, making it easier for individual investors to buy into a company and own a meaningful number of shares.
The lower cost per share also provides investors with the opportunity to build a well-diversified portfolio with a small amount of capital. By investing in multiple penny stocks, investors can spread out their risk and potentially reduce the impact of any single stock’s performance on their overall portfolio.
Furthermore, the lower cost per share makes it possible for investors to take advantage of short-term market movements. Because penny stocks are priced lower, a small move in the stock price can result in a significant percentage gain, offering investors the potential for quick profits.
In addition, the lower cost per share of penny stocks creates opportunities for investors to invest in young, high-growth companies that may not yet be on the radar of larger institutional investors. By investing in these companies early, investors can potentially reap significant long-term profits as the companies grow and mature.
3 Penny Stocks to Add to Your Watchlist Right Now
- Blue Apron Holdings Inc. (NYSE: APRN)
- Arqit Quantum Inc. (NASDAQ: ARQQ)
- Cardio Diagnostic Holdings Inc. (NASDAQ: CDIO)
Are Penny Stocks Worth it or Not?
In conclusion, penny stocks offer several unique benefits for investors compared to blue chip stocks. Whether it be the greater chance of short-term profits through explosive growth, the opportunity for higher returns in emerging industries, the ability to build a well-diversified portfolio with a small amount of capital, or the chance to invest in young, high-growth companies at an early stage, penny stocks provide a different approach to investing and the potential for substantial rewards.
However, it is important to remember that penny stocks come with higher risk, and it is crucial for investors to thoroughly research and understand the companies they are investing in before making a decision. By carefully considering the potential rewards and risks, investors can make informed decisions and potentially realize significant long-term profits through their investments in penny stocks.