Finding a good penny stock to buy is like sorting out a basket of tomatoes from mile 12 market. Beneath is grass. At the middle the rotten and broken tomatoes. At the top, the firm ones. So also with the companies. There is the good, the bad and the ugly.
My journey took me to the financial services sector. Specifically, NPF Microfinance Bank. The financial services sector is one of the few vibrant sectors on the Nigerian Stock Exchange. Indeed the Nigerian economy. Most of the banks were out of my price range. The other microfinance bank was equally expensive.
The few non banking stocks in that sector, were on life support. Before buying the stock, I had done my due diligence. Gone through recent results to ascertain the company was in the land of the living. It had steadily been making profits and paying dividends to shareholders. Trading at below one naira, the price was within my range. Besides, who would think of defaulting on a loan taken from a bank partly owned by Nigerian Police ? That would be serious Gobe!
In order to maximize my benefits from volatility in the market, I bought in tranches at an average of 82 kobo per share in February 2015. With time the market began to view the stock was undervalued. The price began to rise. It was time to get off the train. I sold off in tranches too, hedging for the possibility of a further price increase. Selling half of my holdings at 1.32 kobo in March. With downward pressure beginning to accelerate, I sold the rest of my holdings at 1.32 kobo per share in May 2015. Giving me a profit of 55% in three months.
Follow Onome on Nairametrics weekly for his journey into the world of Penny Stocks