NEW YORK (

MainStreet

)-- The investment in penny stocks can net huge returns. Since the business of trading over-the-counter stocks (OTC) is a "make or break" proposition, you need to apply a lot of preparation and investigation to each stock. To boot, this type of investment is very volatile and could change 20% to 30% one day, and not trade again for a month. OTC stocks are very risky.

Penny Stocks are considered "unlisted stocks" or "over-the-counter stocks" whereby they are not applied to a certain stock exchange like the Dow Jones, Nasdaq or the S&P 500. Instead they are under the (OTCBB) "over the counter bulletin board" or the "pink sheets." Penny stocks are not traded under the large exchanges because of the requirements the small companies lack; instead they have small capital, low outstanding shares or small per share prices. There are different definitions to what is considered a penny stock. Some traders say below $1.00 or $3.00, but according to the Securities and Exchange Commission (SEC), anything under $5.00 is considered a penny stock.

Investing in penny stocks is usually not a short term investment. When buying shares of a company at such a low price, you want to sit on your position and wait until the stock reaches a limit that is appeasing to you. While most stocks trade a minimal amount each day, sometimes it is difficult to acquire or liquidate your investment.

Before purchasing a certain stock, you need to fully understand what the company (and the attached OTC stock) does and its current financial situation. Pick a sector that you believe has the potential to grow. This could include the biotechnology, healthcare, natural resource, etc. Make sure to look at the stocks past and chart history. If they had a dramatic uptrend or sharp dive, what caused it? Has that problem been resolved or why was the stock trading so high at a certain point? You could look into the ownership of the company, since it is public information, and see the main shareholders and what they did in their past. Were they successful? Questions like these are standard for picking the right stock because of the "make or break" situation

Let's say that you purchased an OTC stock at $0.20 and bought 1,000 shares, spending $200.00. You did a lot of research on the company and want to hold the stock for a while. It only has 1 million shares outstanding and trades very little. You watch the stock and it generally does not move. Five months later after buying, the OTC stock releases information that the company is signing a contract that would greatly enhance its annual income. All of the sudden, the stock starts to trade at $0.50 and you sell out. You made $300.00, a huge profit considering the initial investment of only $200.00.

Now let's say that instead of the beneficial information being released, a conference call was announced and the company stated that its biggest account was lost to their competitor. Now the stock takes a nose dive and retreats to $.05 because of the massive revenue loss. Unfortunately you now take a loss of $100.00.

Every day, penny stocks are rising in share price and becoming strong corporations in their sector of business. Your job is to find these penny stocks, invest in them and make some money. Here are some penny stocks to kick start your quest into the over-the-counter world.

Dakota Territory Resource Corporation (DTRC)

is a small company located in Reno, Nevada that deals with the production, exploration, and mining of gold. It has has a current market cap of $7.82 million and trades very low in volume per day. It owns three mining properties which cover approximately 2,466 acres. As the commodity gold influxes, it has an effect on DTRC. In the case that gold reaches its past potential of over $1900.00 an ounce, DTRC would rise.

Hybrid Coating Technologies Inc. (HCTI)

is a penny stock that sells green polyurethane all over the world. This polyurethane is a hybrid that is in coatings and paints. These coatings and paints are used on military vehicles, commercial and residential buildings and houses, marine and boating and on automobiles. HCTI is based in Daly City, Calif. and has a current market cap of only $4 million--though it is rising.

It has a diverse business model selling to a plethora of accounts. HCTI applies a green and renewable twist to what would be a basic substance.

Advanced Cell Technology Inc. (ACTC)

is a ground breaking company helping people to see again. ACTC is a distributor of human embryonic and adult stem cell technology in the medical sector. These products fight diseases, autoimmune diseases, inflammatory diseases and the healing of certain wounds. The company owns approximately 37 issued patents and 190 pending patents in their field. Advanced Cell Technology is located in Marlborough, Mass. and is starting to become a "heavy hitter" in its sector.

There are thousands of companies that could get the next big break in the unlisted markets, but the hard part is finding which one it will be. If you put a little time into researching different companies and finding strong business models, the financial outcome could be huge.

Written by Max Levin for MainStreet