| Thanks to the recession in the USA, people have run | | | | which are still doing well and are quoting at reasonable |
| away leaving their own homes and in some cases | | | | rates. |
| even their small children. When we delve deeper into | | | | These are the stocks that possess a sound business |
| the reasons for this occurrence, we come to the | | | | model and have good fundamentals. Their owners |
| conclusion that this recession happened only due to | | | | have more stakes in their businesses than the others |
| the breakdown of the home loan market. In the | | | | who have gone bust and hence they are paying that |
| USA, the home loan market is very erratic. Home | | | | much more attention to the management of their |
| loans were being doled out for as little as 2%. Can | | | | businesses. It is a general trend in the market that |
| you imagine home loans for which are that cheap? | | | | businesses which have a higher quantum of |
| You may well wonder how this was possible and | | | | promoters' funds are invariably well managed as the |
| how did the industry sustain itself at the rate at | | | | promoter himself has a lot at stake in the company. |
| which it was doling out home loans. | | | | On the other hand, there are shares or penny stock |
| But the main purpose of giving loans at that rate was | | | | that is not doing well. One reason for their bad |
| to improve credit off take and give a boost to the | | | | performance could be over-dependence on external |
| real estate market. Nobody had at that time | | | | debts. The company which has a higher debt service |
| envisaged that it would result in this calamity. But the | | | | coverage ratio is said to be leveraged adequately. For |
| fact is that it has occurred, leaving behind many | | | | companies having a low debt service coverage ratio, |
| people without homes and many children without | | | | their best penny stocks are not doing well. One just |
| parents. This same bloodbath has been repeated in | | | | has to use scientific techniques like ratios to analyze |
| the stock market too. It has mainly affected the | | | | any company and its share price in the market. Some |
| small and mid-cap top penny stocks. The reason why | | | | of these rations are as under: |
| it has affected the penny stocks is not far to seek. | | | | * Earning Per Share |
| There is less liquidity in the market due to the bad | | | | * Price Earnings Ratio |
| debts occurring due to the non payment of home | | | | * Return on Net-Worth |
| loans and their interests, and hence people have | | | | * Book Value per Share |
| started withdrawing money from the stock market | | | | * PEG Ratio |
| to increase their liquidity or improve their cash | | | | * Return on Net-Worth |
| position. As there are net sellers in penny stocks, the | | | | * Return on Capital Employed |
| market values of the penny stocks are also going | | | | These are the important rations that have to be |
| down. But this is not happening in all the small and | | | | evaluated before committing your hard earned |
| mid-cap segments. There are some selected stocks | | | | money in the best penny stock. |