Don’t let the name fool you. A penny stock is simply any stock trading under $5 per share. It doesn’t actually have to be priced at one penny (although many stocks are).
Why the term? And why the price point of $5 per share?
At that $5 price point, institutional investors and hedge funds are typically prevented from owning these shares.
Many of these names are often OTC stocks as well, meaning they trade over the counter and not on a traditional exchange.
Many professional investors are likewise barred from trading in those securities. But you can buy them on just about any trading platform, including popular retail platforms such as TD Ameritrade or Robinhood.
That leaves individual investors with the ability to trade these names. And these stocks can provide explosive returns.
A $1 stock that moves higher by $1 has doubled. A big, established company like Amazon, trading for over $2,500 per share is basically unchanged when shares rise by $1.
That’s why we’re looking at the best penny stocks for investors to trade today. Penny stock trading is one of the few places where traders can make solid profits without being steamrolled by big money players. In today’s markets, there are plenty of top penny stock ideas right now.
Penny Stock #1: Pareteum Corporation (TEUM)
Not all tech stocks are giants. Pareteum Corporation (TEUM) operates a communications cloud services platform. It integrates IT and back office functions with a single-sign-on application program.
It also provides support systems in those areas. Typically, software support is a recurring revenue business, rather than a one-time sale. That makes for improved and consistent profitability over time.
The software space is generally a good place to invest. With no physical product to deliver, the costs of making a product are limited to development, as opposed to manufacturing and delivery with physical goods. That can lead to higher profit margins.
In 2020, remote accessibility is also a critical need, and the company’s software is well-positioned for that as well.
The company has seen its shares decline by 68 percent in the past year, even as revenue growth has risen by 468 percent.
However, shares have already more than doubled off their prior low, and a new uptrend in shares appears to be shaping up. Those returns could improve even more if the company’s recent surge in revenue growth continues.
Penny Stock #2: CV Sciences (CVSI)
A life science company, CV Sciences (CVSI) operates in two segments. It has a consumer products division, working on cannabidiol (CBD) products. These products, which include beauty care, specialty foods, and nutraceutical goods, are sold online or through various retail outlets.
And its specialty pharmaceutical division works on a wide range of commercial cannabinoids to treat medical conditions.
Marijuana penny stocks are abundant these days, as the sector has been out of favor for a while. That’s reflected in the share price here, which has fallen from a 52-week high of $4.35 to under $0.70 today.
But the increasing legalization trends, combined with the rise of better-managed companies, should make the marijuana stock space more attractive. And that means that companies in the space that have had poor returns could see explosive moves higher from here as traders jump back into the space.
Penny Stock #3: FuelCell Energy (FCEL)
One of the larger companies in the penny stock world, FuelCell Energy (FCEL) has a market cap of over $550 million, giving it a lot of trading volume. The company is a manufacturer and seller of stationary fuel cell power plants.
Fuel cells allow for distributed power generation, utility grid support, and on-site power for places that need it. The company’s products serve utilities, industrial locations, as well as educational, healthcare, and data center facilities.
Given the difficulty of improving the existing power grid, the company provides a great solution to customers with its small-scale solutions.
While shares are considerably down over the past five years, the past year has seen a massive upswing in shares. The share price has risen from a low of $0.13 to over $2.36, nearly a ten-fold gain. That’s the kind of massive returns possible with penny stocks, and with FuelCell’s revenue growth up over 104 percent in the past year, it’s likely to continue climbing higher.
Penny Stock #4: Harte Hanks (HHS)
A Texas-based advertising agency, Harte Hanks (HHS) focuses on direct and digital communications. This includes website design, digital strategy, e-commerce, social media, email and database marketing and lead generation.
Besides these technologically advanced tools, the company also provides direct marketing services with traditional advertising tools such as printing and specialized mailing services. These services are still profitable, although the profit margins aren’t as good with traditional mailing compared to digital promotions.
Overall, it’s hard to bet against a space such as marketing. While the economy is currently suffering and marketing budgets likely are with it, chances are it will continue to improve in time. That’s also why the company looks attractive, even after it’s coming off some losses in the most recent quarter.
And with insiders owning over 40 percent of the company’s shares, this is one penny stock where the company management has their interests aligned with shareholders.
As with many stocks in the past year, there’s been a lot of volatility in shares. But they’re more than double off their lows and heading higher.
Penny Stock #5: Integrated Media Technology (IMTE)
Niche technology plays may not become a massive industry, but they’re always there and have some demand. That’s where penny stock companies come into play to serve that industry. Hong-Kong based Integrated Media Technology (IMTE) is one such play.
The company develops and sells 3D autostereoscopic display technology products throughout the Pacific Rim. They also produce conversion equipment that allows 2D content to become 3D in nature through various video and audio software.
This is one pure-play on that trend. It’s a fascinating nice that likely has some solid growth ahead.
So far, however, industry growth has been slow.
Shares of the company went public in mid-2017. And they’ve had a few spikes in price higher, before settling down near the IPO price.
Today, shares are just a bit cheaper than when they first started trading, even as revenues increased in 2019 compared to 2018.
And with insiders owning a whopping 83 percent of shares, this company wouldn’t need much investor interest to head substantially higher in the coming months as interest in 3D technology comes back into focus.
Penny Stock #6: Silvercorp Metals (SVM)
Individual investors are often interested in precious metals plays. That’s because explosive moves higher in gold or silver could lead mining companies to have even better returns. That’s also the case when a company is a small-cap, penny stock as well.
It should be no surprise that Silvercorp Metals (SVM) has more than tripled in the past year on the back of a rally in gold and silver. Those returns handily beat the 30 percent rise in gold, proving the power of buying a penny stock in the right place at the right time.
With the unprecedented central bank activity this year, chances are precious metals will continue to shine. It’s even possible that Silvercorp metals hits a $1 billion market cap.
Shares have already touched on the $5 price point a few times. If it moves higher and stays there, institutional investors will be able to flock in and buy shares as well.
While many mining companies get into trouble with their debt levels, Silvercorp has over $100 million in cash on hand, or about 17 percent of its market cap. That’s a great level of cash to weather any further uncertainty in this space.
Penny Stock #7: Zovio (ZVO)
Although for-profit education companies have generally been out of favor with the market, Zovio (ZVO) has a focus on technology services education.
With over 1,200 courses and 90 degree programs, the company may see a surge in student enrollment from its current levels near 35,000 thanks to a slowing economy and need for workforce retraining.
Traditional educational facilities are suffering from the difficulty in providing physical class locations right now, giving online-based educators a leg up right now.
With those factors at play, Zovio may be able to scale up and take advantage of its ability to provide remote education during a time of global pandemic.
Shares currently trade about halfway between their 52-week high and 52-week low.
Although the company posted a loss in the most recent quarter, they do have about $30 million in net cash after backing out the debt. That’s over one-third of the company’s market cap, making its valuation look much more attractive than at first glance.
With favorable industry headwinds for online education and a cash-rich balance sheet, this penny stock looks better than many of the big names trading on the stock market today.
Penny Stock #8: Uranium Energy Corp (UEC)
Uranium is an unusual commodity. It doesn’t trade on commodity exchanges, and its primary use is for nuclear power. That includes both civilian and military needs.
Uranium had a massive bull market in the mid-2000’s, only to fall from over $130 per pound at its peak to around $20 at the bottom. Over the past year, however, uranium spot prices have started to head higher, toward $30, its highest level in over five years. Technical analysis shows that this trend is likely to continue.
This looks like the start of a new long-term bull market for uranium. The best way to play that is with a company with exposure, such as Uranium Energy Corp (UEC).
The company has a number of exploration, extraction and processing mines, largely in the United States, Canada, and Paraguay.
As with the precious metals companies, a uranium miner is likely to see bigger percentage moves when the price of the underlying commodity it sells rises in value. That’s because costs are fixed in the short-term.
It’s no surprise that shares of this company are nearly triple off their low of $0.35 to around $1. But they could head far higher if uranium prices continue to trend higher as well.
Penny Stock #9: Radiant Logistics (RLGT)
Founded in 2001 and public in 2006, this freight company provides domestic and international air and ocean freight, as well as order fulfillment, inventory management, and warehouse services.
The company works largely with consumer goods, food/beverage, and manufacturing customers.
Generally, freight and logistics are a great place to invest. It’s a trend that tends to move with the economy, and with the economy hit right now, it’s an ideal rebound play.
Although shares are off nearly 35 percent in the past year, shares are only up about 25 percent off their lows in that same time. That’s a weaker rebound than many of the other penny stocks we’ve seen. However, that doesn’t tell the whole story. The company may have seen its earnings drop, but it still managed to eke out a small profit overall, and trades for less than 12 times earnings.
Insiders own 28 percent of shares, meaning their interest clearly lies in continuing to grow out the company with the long-term in mind. This is a trade that still has considerable potential left in it, especially with all the pessimism in the markets right now.
Penny Stock #10: Trevena (TRVN)
Rounding out our list is a biotech penny stock. There are a lot out there, as many are focused on one or two drugs. If successful, small biotech companies tend to get bought out by larger pharma plays.
Trevena is currently working on treatment options for diseases affecting the central nervous system. They’ve completed a Phase 1 clinical study on one of their drugs for treatment of migraines, and another study for acute and chronic pain.
Thanks to some strong updates, the company is one of the few stocks that’s done well in the past year, with a 34 percent rise that’s sent shares to 52-week highs. But there’s more room to run, especially if Phase II trials on their drugs go as expected.
Since going public, shares have been priced as high as $13, about nine times higher than the current price around $1.50. If the company gets successful FDA approval on even one of its drugs, it may end up trading far closer to its all-time highs.
That makes this one of the more speculative names on our list of penny stocks, but one with some of the largest reward potential.
Conclusion
As we’ve seen, penny stocks are a mixed bag of small companies. Some are profitable. Some aren’t. Some have rapid growth ahead of them. They cover a diverse number of industries. It’s a rich pocket of the investment world—and one where institutional investors can’t manipulate the price.
FAQ’s:
Can you make money in penny stocks?
Absolutely! As with any trade, however, it’s good to have a strategy to let your losers go early and let your winners ride. Start every trade with a stop loss of 10 percent. If it falls below that, let it go. Using a trailing stop loss will allow you to avoid losers, and also lock in profits on winners if the stock later turns south. That’s the best way to successfully trade penny stocks, and once you’re comfortable, you can even start day trading penny stocks.
Are penny stocks high risk?
They can be. But that’s investing. Some companies were once bigger names that have fallen onto bad times. Others are high-growth prospects that could surge even more. Both of those types of companies tend to be volatile, which in turn can be risky. Using limit orders when entering trades is ideal to ensure that market gyrations work in your favor.
What should I look for in picking penny stocks?
Think entrepreneurially. Is the company you’re buying one that’s meeting customer demand and isn’t being best served by a bigger, more established name? Many penny stocks are simply duds, and thinking about them this way can ensure that you avoid those when trading.
How can I avoid penny stock fraud?
While it may be impossible to avoid fraud entirely, there are a number of potential warning signs that a penny stock is a fraud. If the story behind a penny stock sounds “too good to be true,” then it probably is. Investors should also stick to high volume penny stocks, as traders tend to stick to better-established names in the space.