October 5 2011|08.00 AM UTC

Stan Reybern

Small Cap Stocks

Category: InvestingTags: , , , , ,

In today’s volatile economy, a small investment that could potentially offer a large return seems more attractive than ever. Small cap stocks, ranging in price from $1 to $10 a share may provide just that opportunity for some savvy investors. While you may not strike it rich with small cap stocks, they can be a great addition to a diversified portfolio as long as you invest carefully.

One reason small cap stocks are so cheap is because they are likely from new companies and offer products or services that may be unfamiliar. This provides the opportunity to capture shares of the next industry giant, such as America Online or Nike, before they become a household name and prices rise far above a dollar. However, this also means that these are riskier investments, as it is less clear what will be successful.

If you’re interested in buying or selling these penny stocks, companies like Choicetrade.com, Firstrade.com, and Zecco.com can help you. Each of these brokerages has different prices and limits to suit the individual needs of investors. Look into each of them to see which suites your needs the best.

Currently, there are a few small cap stocks that have been making gains. Companies like Elephant Talk, Inc. (ETAK), a communications company; Bering Exploration (BERX), an oil drilling development program; and Mojo Ventures (MOJO), a vitamin and supplement company, have started seeing some success once they entered the market. While these may not be household names yet, they may be good stocks to benchmark against if you’re considering trading small cap stocks.

One thing to consider is that small cap stocks may be particularly susceptible to the effects of media manipulation. For the careful investor, this can turn out to be an unexpected boon. Stocks that do better because they’re featured prominently in the news may begin to lag if their PR budget dries out after a quick initial push. For stocks whose marketing funding can hold steady over the long haul, a gain may be a reasonable prediction. In other words, the kind of promotion and marketing a stock receives may be an indication of the degree of its capitalization. Fortunately, there are specific rules and guidelines that require endorsers to disclose the amount of compensation they are receiving. These disclosures can also provide further clues to investors about the financial health of the company.

As with any other stock purchase, you need to study and prepare before making your small cap purchases. Small cap stocks, under the right circumstances, can be the small investments that yield rewards of experience, excitement, and sometimes, even modest financial gain.

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