How to Use News Releases and Events to Research a Penny Stock Company - dummies

How to Use News Releases and Events to Research a Penny Stock Company

By Peter Leeds

Reviewing news items and press releases is a great way to perform research on a penny stock company. Especially with penny stocks, major events that can really move the share price around are often first brought to the attention of the public by way of a press release or media article.

With any news item, ask yourself the following questions:

  • Who wrote the press release? A press release prepared by a company will talk its company up in an effort to get investors excited about the stock. Media coverage, on the other hand, may be positive or negative for the company, depending on the story. As such, you can trust third-party media coverage a lot more than press releases issued by the company itself.

  • What are they really saying? What information can you glean from the article or release that isn’t explicitly stated? Look at any release from various perspectives, and pay attention to the details and facts, rather than the opinions or insinuations.

Press releases from the penny stock company

Press releases generally mention the original source of the document near the bottom. If a release cites the company itself or their investor relations firm as the source, you’re looking at a release that came directly from the stock itself.

You can begin to profit from press releases that are issued by a company when you consider:

  • Frequency: Some penny stocks put out hundreds of press releases every year, while others only do a few. Do these articles have any tangible effect on the share price? Does it seem as those shareholders and potential investors have been overwhelmed by too many releases, so much so that even strongly positive news seems to fall flat?

  • Style: Are the releases highly positive or just informative? Does the tone change over time, such as becoming increasingly positive as the company continually improves or lands new contracts and partners? Watch for trading clues in changes in the underlying tone of the releases.

  • Effect: If a penny stock sees shares jump higher with each news item, you can expect that trend to continue and can potentially profit from it. On the other hand, some penny stocks will see no impact from positive news items.

Third-party coverage for penny stocks

As companies grow, they attract more attention from the various media outlets. As a company enjoys more media coverage, assuming the majority of that coverage is neutral or positive, they grow.

You can trust third-party comments about a company — whether a glowing review on a major television program or a single paragraph in an obscure niche magazine — much more than company press releases. Positive media coverage can benefit a company from the perspectives of both attracting customers, as well as attracting investors in their stock.

Follow media coverage of any penny stock you already own or are considering investing in. Using major search engines such as Google, Yahoo!, and Bing are a great way to do this, and many of them will allow you to set automated alerts so that you don’t miss any article or coverage.

Consider following any niche trade publication that covers the industries you invest in. The added benefit of doing so is that you will also find out more about the competition, which is always beneficial from an investor’s perspective.

Milestone events for penny stocks

Investors can easily anticipate some major events that could have a positive or negative impact on a stock’s value. Companies may mention in a press release that they’re in the running for a prestigious award and indicate when they anticipate decision to be announced.

Companies also publish their financial results in a predictable pattern year after year. And you can probably gauge how long it should take a firm to develop that certain drug or new technology, at which point it will make a public announcement. All these events could have a significant impact on the share price, and savvy investors could have anticipated them before they were actually announced.

To attempt to profit by trading around milestone events, those occurrences must be

  • Predictable: You may not know the exact date of a potential milestone event, but you should have an indication of a time period when a related release may be issued. Dates for releases of financial results, new customers, management changes, or even anticipated entries into new markets are relatively predictable. Companies tend to telegraph most events. By anticipating them, you increase your chances of profiting over shorter time frames.

  • Impactful: Unless an event will have a material impact on the operations of the company or its prospects, the release of information may have little effect on share price. If your intention is to profit from news releases, only play the most significant events.

  • Under-recognized knowledge. This doesn’t mean insider trading or knowledge inaccessible to the public. Rather, consider events you anticipate based on your own analysis or even events that the majority of potential investors don’t take seriously but that could help the stocks trade at higher prices.

You can trade milestone events by positioning yourself ahead of time to benefit from any positive results. Just be cautious in events like this of the “buy the rumor, sell the fact” concept.