Trading stocks does not have to involve thousands or millions of dollars and big corporations like Amazon or Tesla. There are stocks that are referred to as “nano-cap” and “micro-cap” stocks, or penny stocks. They are low-value stocks that represent smaller companies and have stock prices that are often priced under $1 per share. However, any stocks with shares under $5 are considered penny stocks. These can be sold over the counter or on exchanges regulated by the SEC such as the New York Stock Exchange. This makes them more accessible to investors with less capital or beginner investors.
Historically, penny stocks have been known to involve scams and artificial price inflation because they are easy to manipulate. One common manipulation is called the “pump and dump.” This is when marketers who hold shares of certain security spread false information about the company who issues the stock. This causes the price to increase drastically and the marketers who spread this news “dump” these inflated stocks onto investors who decide to buy after hearing the false news. These days, social media has only increased fraud which is why it’s even more important for potential investors to do their research before buying a stock.
Despite the fraud often associated with penny stocks, they are attractive because they have higher-than-average volatility. This means that the magnitude by which the stock will increase or decrease in value will be high throughout a trading day. It also means that there is a lot of space for profit when buying and selling penny stocks. For instance, if you buy 100 shares of one stock at $1 and sell these shares at $2, you’ve made double your money. However, this high volatility also means that there is a lot of risk in trading penny stocks so the risk of losing a lot of money quickly is high.
When Looking for Penny Stocks
There are certain features you want to look for in a potential penny stock. One, you are going to want to look at the trades of the penny stock on a major exchange. Search for stocks on exchanges such as the NYSE or the NASDAQ as stocks on these exchanges has to meet certain requirements that are put in place by the SEC. This significantly decreases the chance that you will be subject to fraud.
Two, look for a high daily trading volume. If you want to sell a stock, there has to be someone willing to buy it. Search for penny stocks with a higher average daily volume by using a stock screener. This helps to ensure that you can sell your stocks when you want.
Three, make sure to look for positive earnings per share as it indicates that a company is currently profitable. This might not be possible for every penny stock, however, as many of these stocks come from small or new corporations. If by chance you want to invest in a stock that has a negative EPS value, make sure that the company does not have a lot of debt.
The Best Penny Stocks Under $1.
1. NextSource Materials (OTC: NSRCF)
This is a mine development company based in Toronto, Canada. They current develop their own 100%-owned, feasibility stage Molo Graphite Project located in Madagascar. Demand for graphite has increased dramatically as the increase in demand of electric vehicles has risen exponentially over the years. Graphite is used in the anodes of the batteries in electric vehicles. This is a good option because of the relevance of its asset.
2. CaixaBank (OTC: CAIXY)
caixaBank is a socially responsible financial company that has a long-term universal banking model built on quality, trust, and specialization. They offer the best tools and advice for customers to make decisions and form habits that are the base of a good financial well-being. This stock has a market cap of $11 billion, an EPS of $0.13, and an annual dividend yield of $0.03 per share. The stock has high liquidity and the company trades over 417,000 shares per day and made $9 billion in revenue in 2019.
3. Edgewater Wireless Sys (OTC: KPIFF)
A lesser-known technology firm, Edgewater Wireless has formed a strong new radio architecture for Wi-Fi called MCSR. This helps to resolve the capacity and interference challenges that ruin Wi-Fi performance. With the increasing demand for 5G wireless infrastructure, this stock has increased significantly and has yielded a 200% profit.
4. Integrated Ventures (OTC: INTV)
This company acquires, launches, and operates companies related to the cryptocurrency market. They focus on crypto mining and manufacturing the equipment used in the process. In addition, Integrated Ventures aids in developing blockchain software. The stock might not be the best option for conservative investors, but it is a stock to keep in mind as the virtual currency sector is only increasing in popularity.
5. Gold Standard Ventures Corporation Common Stock (Canada) (AMEX: GSV)
Gold Standard Ventures, an exploration mining firm, is currently developing the South Railroad Project. This project is an open pit, heap leach gold project that is located in Nevada. Their stock is one to keep in mind as gold has usually been a safe place against the market and market risk. However, the pandemic and the recession that has come along with it still worries investors.
6. Bionano Genomics (Nasdaq: BNGO)
This company has a lot of momentum going for them as they offer a diagnostic services subsidiary that analyzes the genome of a person with Autism spectrum disorder. This analysis pinpoints gene variants and other genetic deviations and their genome mapping platform (Saphyr) is ahead of others at locating structural variants in the genome. They are also more cost-effective than their competitors and Saphyr could be the new standard in clinical diagnostics.
The penny stock market can be very exciting as there are a wide range of options in various sectors with high volatility. There are hundreds of stock options under $20 so it’s easy to see why people are so drawn to investing in penny stocks. It is very important to remember, however, that penny stocks are extremely risky and should never make up the majority of your portfolio. Investing in a few penny stocks is a good idea and cannot hurt though as they might increase in value. The base of your fund should be index funds and total market funds so there is less risk, room for growth, and an opportunity to make a return in the future.