There are also few industries whose fates are as directly linked to Uncle Sam. Healthcare, biotech, and medical stocks live and die by Federal health budgets, and with Obamas official health plan released to the public not so long ago, millions of investors are wondering just how the plan will affect shares of their favorite companies.

In the penny stock realm, it gets even more interesting

In President Obamas budget, he outlined three areas where public dollars will be used to fuel sales at private companies: the implementation of health IT, medical research, and Medicare spending.
Health IT was a hot topic during the election, and it continues to draw Federal dollars now that Obamas in office. We will make sure that every doctors office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year, said the President.

Hes following up on that by providing $19 billion in tax dollars to help hospitals go digital.

And in kind, companies that provide electronic medical record technologies (most of whom are small-caps) are seeing increased interest from investors. Two small-cap stocks that have benefited from that interest include Quality Systems (NASDAQ: QSII), up 33% in the last month, and Patriot Scientific (PTSC.OB), up 20% in the last three weeks.

Medical research is another area where small-cap stocks are seeing a resurgence of interest. There are scores of pharmaceutical penny stocks that are researching and developing the latest drug treatments for everything that ails us, and theyre poised to tap into the $1.1 billion in government funding for researching medical treatment effectiveness.

Over at Penny Stock Fortunes, subscribers are seeing the effects of that money first hand. Today, they had the chance to unload shares of Dendreon (NASDAQ: DNDN) for 255% gains.

While DNDN may have been one of the bigger gainers, a number of other tiny pharmaceuticals have been up double digits this year as well.

Medicare is the final place where Uncle Sams health dollars could trickle down to your portfolio. You see, most private healthcare and health insurance companies bill Medicare for services provided to patients it covers. Included in the mix are a number of small-cap names WellCare (NYSE: WCG) and Amerigroup (NYSE: AGP), for example.

When the government commits to expand Medicare funding, it means big things for these Medicare contractors. Not only do they have the chance to increase volume by admitting more government-sponsored patients, but they become ripe targets for acquisitions by larger health insurers like UnitedHealth Group (NYSE: UNH).

Want to make money on healthcare stocks? Invest your money where the governments spending theirs, and your chances of profiting from penny stocks are unquestionably higher.

About the Author:
Jonas Elmerraji is the editor of the Rhino Stock Report and a contributor to The Penny Sleuth, which offers unbiased commentary from expert analysts and authors on hot penny stocks.

Penny Stock Promoters - a sad truth with penny stocks is that many of them are promoted or “touted” by paid cheerleaders, whose only aim is to drive up the price of the shares.

Promoters may be “investor visibility” companies, who are paid either by cash or with shares in the company to drive up the price. They are very common, and generally operate online, especially since it was the widespread adoption of the Internet which makes most of their tactics, along with their anonymity, possible.

Generally this type of promotional firm will publish glowing research reports about the penny stocks, with very high price targets, and will distribute them to mailing lists and through free-access web sites. This is a major risk for investors in penny stocks, and the most likely way to lose money.

Founders of Penny Stock Companies – these are generally the entrepreneurs whose great idea or business has grown enough to justify the penny stock listing. They often know little about the workings of the markets and how penny stocks trade, and much of the time they could care less.

It is unfortunate that many of these founders of small companies get derailed, used, or trampled by the other types of people involved such as the scam artists or promoters.

Executives in Penny Stocks – Many times the original founder of a company will retain a leadership role in the operations of the corporation, once the shares are publicly traded. More often, however, the positions of CEO, CFO, CTO, etc, are swapped out with “experienced” executives, who may be hand-picked by the venture capitalists or investment bankers who funded much of the penny stocks’ growth.

The thing about some executives is that they believe paid-for promotion is a good way to increase the price of their shares. They may present at an investment conference, or buy coverage from one of these tout-sheets, and spend many thousands of dollars (or provide many millions of shares) in the process.

While the share price of these penny stocks may increase as a result, it is an artificial inflation, and as such is unsustainable. Prices will come back down.

Besides that fact, it is generally poor-quality companies that need to take the paid-promotion path anyway, and rarely the well-run, high-quality up and coming penny stocks.

Venture Capitalists – the money to take an idea, fund it, and grow the business usually comes from either investment bankers or venture capitalists. They may provide millions of dollars, or help the corporation raise the capital on the stock market by selling more shares of the penny stocks.

Of course, the investment comes with strings attached. Those that provide the money to these penny stocks may fill the board of directors with their own people, or place their choices into the key executive roles. This is not necessarily a bad thing, and has actually helped many penny stocks break out of the chains that their former management (often the original founder) had unwittingly built, which held the corporation down.

Scam Artists in Penny Stocks – Since penny stocks by their very nature are thinly traded, and can move dramatically in price, they make for the perfect vehicle for scam artists to manipulate. There are a lot of ways in which a scam can be perpetrated with these tiny shares, but it generally involves picking up a tremendous amount of shares cheap, then driving up the price while they sell into it.

A scam artist could be a 12 year old kid using his mom’s computer, or a well-known CEO who knowingly issues misleading press releases. Often, organized crime has been involved.

The best way to protect yourself from being the victim of a scam, is to only invest in penny stocks with solid fundamentals, like those profiled by well known analysts through subscription-based newsletters and websites.

Analysts of Penny Stocks – Professional analysts know what to look for in their investments, and those focused on penny stocks will generally provide you with much better prospects. These companies will have been professionally pre-screened, so you can rest a little easier knowing that the penny stocks will have legitimate operations and business models.

It is important that you look for those analysts of penny stocks that have a subscription cost, or else you would need to question their motivations for providing you with free penny stock picks.

By gaining an understanding of the various players in penny stocks, you’ll be better suited to avoid some of the pitfalls, while finding higher-quality investments for your portfolio. Just remember, there are a lot of hidden motivations in the low-priced stock world, and you don’t want to become a victim to them.

About the Author:

Peter Leeds reveals top Penny stock companies to subscribers of his newsletter. Learn more about Peter Leeds and penny stocks with his free online book.