Expert: Paul Henneman - 12/11/2003

Question
Hello:

Is there a difference between low-priced stocks and penny stocks?

For example, some stocks may be priced above $1.00 per share and are regarded as a penny stock, but other stocks at the same price may be regarded as a low-priced stock.

I thank you for your reply.

Answer
Thank you for your question!
There is a difference between what are called 'penny stocks' and other stocks that are simply low priced. I often quote the Barron's Dictionary of Finance and Investment Terms (page 440)since their explanation is usually simple and easy to follow:
"stock that typically sells for less than $1 a share, although it may rise to as much as $10 a share after the initial public offering, usually because of heavy promotion. Penny stocks are issued by companies with a short or erratic history of revenues and earnings, and therfore such stocks are more volatile than those of large, well established firms traded on the New York or American stock exchanges. Many brokerage houses therefore have special precautionary rules about trading in these stocks and the securities and exchange commission requires that brokers implement suitability rules in writing and obtain written consent from the investors. All penny stocks are traded over the counter, many of them in the local markets of Denver, Vancouver, or Salt Lake City. These markets have had a history of boom and bust, with a speculative fervor for oil, gas, and gold mining stocks in the Denver penny stock market in the late 1970's turning to bust by the early 1980's."
I hope this helps! Please feel free to follow up if I can be of any additional assistance.

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com