Penny stocks are arguably the riskiest types of stocks in the capital markets as these low-cost stocks are an opportunity and a threat as well. Despite this, these stocks have witnessed a stream of investors’ interest in the past year. Here we will explore the best penny stocks for 2022.
Penny stocks are considered lucrative and often see massive gains but come with high-risk because of the high probability of illiquidity. Lack of interest of buyers creates liquidity problems. There may be an unavailability of buyers when you want to sell your penny stocks. That sometimes makes getting out in a hurry nearly impossible.
If investors take care of some important things while choosing penny stocks, it can be proved an opportunity to enter in the new year. Back in the 2000s, Apple shares have been a legit penny stock that traded for less than one dollar per share. And now it is one of the most popular companies globally. It has provided over 46,750% returns to its early investors.
What Exactly Penny Stock Is?
In the US, the Securities and Exchange Commission (SEC) defines penny stocks as the stocks of micro-caps companies. These are the securities with low market capitalization and these stocks are traded for less than $5 per share. Another name of penny stocks is micro-cap stocks. They are often sold ‘over the counter’ instead of trading on major centralized stock exchanges. That’s why sometimes these are also called OTC stocks.
Success Stories of Penny Stocks
Successful companies are the result of strategic efforts. These were not born as successful companies, but they are made. 20 years back, no one could even think that Apple would show such a huge success. Let us see more such examples.
Back in 1997, Amazon shares had been traded $1.68 and in 1998, they were at $5. At present, Amazon shares are traded at over $3,000. Stats show that it has grown almost 12,040% from its inception.
Apple ( AAPL)
Apple was not established as the largest tech company on the starting days. It had been traded at less than $1.
There was a time when its IPO was not successful and its share was traded at $2.
Ford Motor Company (NYSE: F)
For the well-known automobile manufacturers globally, your reaction to this may be like ‘O really’. Its shares had been traded for less than $2 when General Motors (GM) was going bankrupt.
Other examples that had slid into penny stocks at a time of fading business are Monster Beverage Corporation (MNST) and BlackBerry (BB on the NYSE, Radio Shack (RSHCQ) and Eastman Kodak (EKDKQ), Xerox (XRX)
Features Of Penny Stocks
Penny stocks are the stocks of micro-cap companies having vast potential for growth. These companies can provide much higher returns in comparison to blue-chips or mid-caps.
Penny stocks are usually priced lower than $1 that makes investors buy a substantial amount of stock units. It is known as the investment of small investors.
Penny stocks are illiquid because the issuer companies are relatively unpopular. It may be a challenge to find buyers of these stocks. Therefore, you can not sell them in an emergency to get cash in hand.
4) Unpredictable pricing
You may not get adequate pricing for your penny stocks and it may result in a lower profit margin. Similarly, there are chances of selling them at a significantly high price, resulting in a considerable profit. Therefore, it is the most arguably risky segment.
Also Read: Top Stocks To Buy in 2021
What Makes Penny Stocks Risky?
The temptation to invest in penny stocks is super simple because, with a relatively small investment, you can make significant returns. But this lower-cost investment showing significantly large profit comes with a big if. It means it will work only when you trade in strategic steps. Before that let us discuss the major factors that make micro-caps risky.
1) Lack of transparency and information
Penn Stocks are issue by startups and micro-cap companies, you may not find enough information about these companies. Therefore, they can be risky avenues without fundamental information.
2) Non-adherence to regulations
Micro-cap companies are the pink sheet-listed companies and their low-priced penny stocks are to be traded at over-the-counter (OTC) markets without a trading floor of central stock exchange such as the New York Stock Exchange (NYSE). They do not file their financial reports to the SEC like the companies listed on centralized stock exchanges like NSE. This is also one of the reasons for the non-availability of financial history.
3) High volatility, poor liquidity
A low level of liquidity in stocks results in no selling or selling at a lower price than cost. Because it may be difficult to find a buyer for particular stocks and it is near to impossible to sell in a hurry. Poor liquidity makes micro-caps an easy target for spammers and fraudsters. Stocks with high volatility have a big difference in their highest price.
4) Susceptible to manipulation and scams
The pump and dump scam is one of the most popular penny stock scams. You may find an email showing load up on the cheap and worthless stock and trying to convince you to buy cheap stocks at inflated prices (pump), and sell them soon when the price is high enough (dump). The basic funda is that some scammers purchase a higher amount of penny stocks that result in value inflation. Mostly, it attracts newbies to follow the hype.
5) Price Manipulation
There is a risk of price manipulation by brokers and promoters as penny stocks are trade-in low volume. Like other stocks, penny stocks also have upper and lower circuits. If a stock price is locked in the upper or lower circuit for a long time comparatively and that too without corresponding notice, there are high chances that the price is being manipulated.
How to Choose The Best Penny Stocks For 2022?
Just because the risk involve in penny stocks doesn’t mean it should be completely avoide. Give them a place in your portfolio to gain with low-cost investments. Consider these points while choosing penny stocks:
1) Find Out Reason
Why are they so cheap? There may be any of these two reasons for their cheap pricing:
- The issuer company may be relatively new and making efforts to attract widespread investors. OR
- The company’s stocks are no longer valuable because of unsatisfactory business performance, any regulatory issues, scandals. There may be a dozen such reasons.
Understand first why the stock became penny.
2) Promotion vs. Research
You need to differentiate between advertisements in the form of a newsletter and a research report. Promoters may issue flattering reports about their stocks in order to convince people to invest in worthless penny stocks. These promotional newsletters look like legitimate research reports. To check the legitimacy, one can look at the end of the report, if the writer of the report is being compensate by the company in cash or stock, then it is a promotion only, no research report.
3) Quality of management
The success of a business largely is the result of the quality of its management. The same rule is applicable to penny stock companies. Find out the experience, successes, and failures of the executives and directors of the company.
4) Corporate Transparency
Corporate transparency is complement by the quality of Disclosure. The more disclosure the micro-cap companies provide, the better. OTC Markets Group divisions will help you to understand the authenticity of penny securities. It is divide into groups – the top tier, middle tier, and bottom tier on the basis of the company’s operations and disclosures.
5) Check Financial Status
Micro-cap companies generally are not bound to furnish in-depth financial reports. But you can scrutinize the financial statements released by them. Check its balance sheet and find out the company has any substantial liabilities and net cash in hand. If you find growth in revenues from the past, it is a good sign.
Therefore penny stocks require additional care than average stocks. Avoid a company where insiders are under investigation for criminal activity, or questionable promotional activities like spam emails.
List of Best Penny Stocks For 2022
- Northern Dynasty Minerals Limited (NYSE: NAK)
- Conduent, Inc (NASDAQ: CNDT)
- Jaguar Health (Nasdaq: JAGX)
- Opko Health (OPK)
- DHT Holdings (DHT)
- Exela Technologies (XELA)
- Mustang Bio (MBIO)
1) Best Penny Stocks For 2022: Northern Dynasty Minerals Limited (NYSE: NAK)
Northern Dynasty Minerals Ltd specializes in U.S. mineral exploration. It has traded at a strong level recently in Jan 2022. Pebble Project in Alaska is a world-class project to be develop by the Northern Dynasty. At present, it is an undeveloped copper and gold resource. NAK stocks are currently available for around $0.45 per share.
2) Best Penny Stocks For 2022: Conduent, Inc (NASDAQ: CNDT)
Conduent Incorporated is a technology solutions provider to organizations in the US, Europe, and internationally as well. Services like Business process solutions, Customer Experience Management Solutions. transaction-intensive processing, analytics and automation services, etc. There is a fair chance for their stocks to perform well in the long-term.
3) Best Penny Stocks For 2022: Jaguar Health (Nasdaq: JAGX)
Till date, JAGX shares have gained outstanding growth of 53%. Six months track showed that JAGX has recorded a paper profit of over 253%.
4) Best Penny Stocks For 2022: Opko Health (OPK)
Opko share is trading near $4.50 which was a double-digit price stock a few years back. You have the chance to book profits in the short term as the company is leveraging technology with medicine. It has deployed mass-scale COVID testing that gives clients a unique ID to access events.
5) Best Penny Stocks For 2022: DHT Holdings (DHT)
Shippers are on investors’ radar. Its demand is going to rise. Most recently, bulls record is at multi-month highs, as its shares have been at $5.73 on Jan 2022.
6) Best Penny Stocks For 2022: Exela Technologies (XELA)
Robotic and automation processes still sit at investors’ grasp. The future is going to be more automated. Therefore it is an opportunity for investors that may be beneficial in the long run.
7) Best Penny Stocks For 2022: Mustang Bio (MBIO)
A well-known biopharma company among investors whose shares have kept some real promise. The stock is trading at $4.50.
Some other stocks that can be added to the list of Best Penny Stocks for 2022 are Aileron Therapeutics Inc. (ALRN), Karora Resources (KRRGF), Precision Drilling Corp (NYSE: PDS), Hecla Mining Company (NYSE: HL), Avinger, RealNetworks (RNWK).
The Bottom Line
Successful investors understand risk and form a strategy to reduce the chances of a failure in trading. Do not invest in a company just because someone else says to do it. Do your research by keeping the above-mentioned point and only invest what you can afford to lose.