Insider Monkey

15 Best Penny Stocks To Buy Now

Fahad Saleem
11 min read

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In this article, we will take a look at the 15 best penny stocks to buy now. To see more such companies, go directly to 5 Best Penny Stocks To Buy Now.

Investing in penny stocks is risky but if executed correctly gives investors huge opportunities and exposure to multi-baggers of the future. In his book “Stocks for the Long Run,” Jeremy Siegel talks in detail about the performance of small and large-cap stocks. He quotes a study conducted in 1981 by Rolf Banz, a graduate student at the University of Chicago. Banz investigated the returns of small and large-cap stocks using a database that was later published by the Center for Research in Security Prices (CRSP). According to the Siegel, Banz found the small-cap stocks “systematically outperformed large stocks, even after adjusting for risk as defined within the framework of the capital asset pricing model.”

However, Siegel noted that while small-cap stocks have outperformed large-cap stocks, the returns of small companies have “waxed and waned” over the past 86 years.

“Small stocks, measured by the bottom quintile of market capitalization, recovered smartly from their beating during the Great Depression, but their performance only matched large stocks from 1926 to 1960. Even by the end of 1974, the average annual compound return on small stocks exceeded that of large stocks by only about 0.5 percent per year, not nearly enough to compensate most investors for their extra risk and trading costs. But between 1975 and the end of 1983, small stocks exploded. During these years, small stocks averaged a 35.3 percent compound annual return, more than double the 15.7 percent return on large stocks. Cumulative returns in small stocks during these nine years exceeded 1,400 percent.”

All the books and investment advice and so-called "secrets" of investing in the stock market eventually boil down to making the right selection by sticking to time-tested investing principles and having a long holding period. In this regarding Siegel’s book mentioned an interesting study that shows the importance of stock investing and the role holding periods play in increasing stock returns. Siegel says that following the Great Crash media and analysts were of the view that there’s no significant benefit in investing in the stock market. In response to these notions several academic studies were conducted that proved the importance and relevance of stock investing. For example, following the conclusion of World War II, two professors from the University of Michigan, Wilford J. Eiteman and Frank P. Smith, published a study of the investment returns of actively traded industrial companies. They found that regularly investing in select 92 stocks “without any regard to the stock market cycle (a strategy called dollar cost averaging), stock investors earned returns of 12.2 percent per year, far exceeding those in fixed-income investments.” But they did not stop the study here. After 12 years they repeated the study using the same 92 stocks and found that the returns had exceeded those recorded in the previous study.

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