One of my favorite investment types are penny stocks. There's a lot of people that shy away from these types of stocks because they think they are too risky. However, there's so much opportunity to make money with these stocks if you know what to look for. Let's have a look!

Typically I consider any stock under $2.00 to be a penny stock and focus on up and coming companies instead of established companies. There are many companies that are now trading under $2.00 because they have had difficulties. Rather than invest in these companies, I look for upcoming companies that are in the growth stage. This gives me a chance to make some huge cash in the future.

So how do you pick the companies to invest in? This, of course, is the million dollar question!

The first thing to look at is to examine the industry that the business is in. Is it a growing industry or a dying one? Is the competition too stiff for a new entrant? Does the industry face any threats to its survival? This is a top-down view to the industry to make sure that the company is involved in an area that gives them the opportunity to be successful.

Second, what about the company itself? I always like to see a company that differentiates themselves from the competition in some way. Perhaps they offer a unique product, or maybe they are going to compete by offering lower prices than the rest. It's always a good idea to find a company that offers something unique and stands out from the rest in some way.

You should also take a look at the financials of the company, although don't panic that they may have negative earnings. This is often the case with growing companies. However, I do want to see that the company has access to funds or financing so that they can continue to push forward.

Lastly, look for a company that has strong communications with shareholders. I like to see a website where the company publishes company news so that I have a way to stay up to date on what happening.

Penny stocks can give you massive returns if the company starts to become successful. There's some incredibly money to be made once you know what to look for.