Such articles are the "pump" part of a pump-and-dump scheme. After touting a stock, tricksters dump it, leaving investors holding the bag. (Think the Wolf of Wall Street.)
TheStreet's Adam Feuerstein reports a recent case here: Galena Biopharma Pays for Stock-Touting Campaign While Insiders Cash Out Millions.
In the video above, I sit down with Saintvilus to discuss pump-and-dumpers and how one may gauge whether a penny stock has value.
Avoid Chat Room Tips
To avoid being duped, Saintvilus says investors must do their due diligence with vigor. Similar to the research one does when buying a house, if you are buying a stock, you should study the company's CEO, quarterly and year-over-year earnings and at least the fundamentals before you make any moves.
TheStreet's Debra Borchardt says investors shouldn't trust chat rooms and message boards for penny stocks. That is ground zero for starting rumors.
"Investors should stick to the facts, which are the filings, and not an anonymous tip in a message board or on StockTwits or Twitter (TWTR). If you follow StockTwits, make sure you recognize and distinguish between anonymous filers vs. people willing to identify themselves. Anonymous tips tend to be suspect," Borchardt says.
In the video, Saintvilus also discusses penny stocks, and how even good stocks, such as Sirius XM (SIRI), Nokia (NOK) and Sprint (S), may trade under $10, and even as low as $5, but still retain their value.