Penny Stocks to Watch in 2012

With another year coming to an end, and another one approaching, it is that time to forecast the where the junior markets will lead us over the coming 12 months. Our annual edition of the Penny Stocks to Watch does not yet identify individual stocks to watch, that will be done in more detail as the year unfolds, but rather it will look focus attention on the industries which will see the greatest growth in the penny stocks sector.

Gold Stocks and Mining

Yes, gold has had a great year in 2011, rising to new levels but gold stocks have lagged well behind the precious metal. While this is not a surprising trend, the physical metal tends to front run stock prices, it is also something that in our opinion cannot continue over the long run. We expect to see a bounce in the price of gold stocks early in 2012, with the focus on those either in production or near production. Good news for gold penny stocks, there will be a trickle down effect from the major producers, as investors look for growth and value opportunities in the micro-cap market. Investors should look for companies which are well financed, have strong management teams, and are currently in production, near production or an advanced stage of exploration. Aside from production, investors should be on the lookout for properties which have an established gold reserve and resource calculation, always make sure the numbers are 43-101 compliant.

Energy Continues to Thrive

Look for energy stocks which are either in production, near production or boast significant reserves. Oil and gas is always an excellent sector to look for penny stock gems, as it is still feasible for a small company to generate a profit in this industry by drilling a gas or oil well in a known region. Avoid oil penny stocks which are in politically unstable regions, or companies which are going elephant hunting, unless you plan on playing the blue sky/promotion gamble.

And while oil & gas penny stocks can be very attractive to investors, look outside the box for other opportunities in the energy sector, think coal. That is right, coal is the heart of North American power generation, and there are a number of opportunities in the coal sector, especially with this market experiencing a mini boom at the moment. Coal is interesting, but there are a couple of things to look for in this sector of the energy market. First, not all coal is created equal, there is a number of grades and uses for coal, look for companies which offer exposure to coking or metallurgical coal. Sure, met coal is not used in the energy market, but it does demand a huge premium per ton. Second, look at the companies coal resource/reserve estimate, this is the driving force behind potential takeover bids from the majors. It is great to see a small coal mine in production, generating profit, but if they company has a dwindling supply and few prospects in the hopper to increase those supply lines, it may be a coal penny stock to avoid.

Avoid uranium or anything related to nuclear power generation. That is not to say that there are not going to be opportunities in the uranium sector, or that there is going to be a resurgence of nuclear energy projects, but these are currently tough sells in the market, people are still smarting from the disaster in Japan. Nuclear energy sparks controversy, and it is going to be hard for less established companies playing in this sector to thrive.

Also, be careful with alternative energy penny stocks, there are some excellent options for power generation from wind and solar, but make sure to scratch well beyond the surface. Alternative energy projects tend to be very capital intensive, which does not bode will for the penny stock market. Unlike a small oil and gas company drilling a couple of wells and generating significant revenue, alternative energy requires some pretty hefty investment before it registers on the bottom line.

Green Penny Stocks

So we just panned alternative energy, and now we are touting green initiatives, but there are a number of opportunities in the green sector, and yes some of them utilize alternative energy sources. One thing to keep in mind is that there will eventually be a green revolution at some point, our current energy demands and pollution output simply cannot be sustained, but that day will not happen in 2012. That being said, a shift towards green alternatives to existing solutions is a step in the right direction. Green penny stocks to watch in 2012 will look to utilize technology to improve efficiency or lower pollution output. An example of this and an area that I find intriguing is the use of compressed natural gas with diesel to lower fuel costs (cheaper fuel) and lower emissions. These are the types of solutions which make sense to investors, customers and the overall market.

Wrap it Up!

In closing this off, 2012 will be a good year in the markets for penny stocks, but investors need to be careful and do their own due diligence. Make sure to sign up for our Penny Stocks Research Reports, as this will give some excellent insight into a number of potential investments. Our opinion is that gold and mining penny stocks will start to catch up in value to the actual physical metals, energy will continue to be a driving force, and green initiatives will emerge as a significant player in the micro-cap markets. Good luck to all investors.