Top Strategies to Find the Best Penny Stocks Under $5
Exploring the world of penny stocks offers exciting investment opportunities, but it requires astute strategies to identify real winners. In this update, we delve into essential techniques for finding penny stocks to buy and a list of cheap stocks to watch today.
Analyze Fundamentals
When researching penny stocks to buy, dig into company financials and fundamentals. Check revenue and profit margins over recent years. Growing revenue and improving profitability point to a strong company. Steady losses over many years or high debt levels are red flags. The company’s business model and industry prospects are also key—look for innovation and emerging industries like tech or biotech.
Evaluate Management
The leadership guiding a penny stock company is critical for its success. Analyze executives’ backgrounds to ensure they have experience in their industry and past successes with building companies. Frequent management shakeups or misconduct are troublesome signs. The best penny stock companies have committed teams driving strategic visions.
Check Technicals
In addition to fundamentals, assessing technical indicators on charts can signal good entry and exit timing. Penny stocks inherently have high volatility, so leverage technicals like trading volume, moving averages, RSI levels, and simple support and resistance. Let the technicals align on top of your fundamental analysis.
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While penny stocks can make big leaps in short periods, it still pays to bide your time and wait for prime buying conditions. Have patience securing good purchase prices, such as on temporary dips or retracements after a strong run. Conversely, don’t chase gaps up on hype alone. Buying penny stocks requires discipline to trade on your terms.
Use Limits
Penny stocks are very susceptible to irrational price moves—sometimes enormous daily swings on no news. Always use disciplined stop-losses to protect profits and limit capital at risk. Setting percentage-based or volatility-based stop levels ensures you won’t lose your entire investment on one bad trade.
With a little background on how to find penny stocks to buy, today’s article focuses on a handful gaining momentum in the stock market today. Whether they have a place on your watch list or not is up to you. But here’s what’s acting as catalysts for some of these penny stocks today.
Penny Stocks To Watch
- Plug Power Inc. (NASDAQ: PLUG)
- Ardelyx Inc. (NASDAQ: ARDX)
- The Beauty Health Co (NASDAQ: SKIN)
- Opendoor (NASDAQ: OPEN)
- Senseonics Holdings, Inc. (NYSEAMERICAN: SENS)
Plug Power (PLUG)
Shares of PLUG stock have been on the list of penny stocks to watch with unusual options activity this month. In our article, Penny Stocks To Buy Now? 3 To Watch With Unusual Options Volume, we highlighted the company for unusual action in the $4 Calls expiring this week. At the time of the article, more than 4,100 contracts were traded as with 9,007 open interest. In the stock market today, there have been more than 5,700 contracts traded on just under 8,500 in Open Interest.
What’s going on with PLUG stock to ignite such a speculative scenario? A warning from the hydrogen developer seems to have turned into a reason to thing there’s more to the story for some. In its Q3 earnings, the company stated that it could run out of money in a year. This, as some would suspect, sent PLUG stock tumbling to fresh 52-week lows.
The company posted a loss of $0.47 on revenue of $198.7 million. This was compared to estimates from analysts at $199.4 million. The company also said “overall financial performance has been negatively impacted by unprecedented supply challenges in the hydrogen network in North America.”
In a Barron’s interview, CEO Andy Marsh said, “We view this going concern [note] as an accounting technicality…It’s always a bad sign when I know the code of the accounting [standard], ASC 205-40.”
With this, momentum has steadily come back into the penny stock since it plummeted earlier this month following earnings.
Ardelyx Inc. (ARDX)
Ardelyx, Inc. is specializing in developing innovative medicines for significant unmet medical needs. It recently announced that the U.S. FDA granted Orphan Drug Designation to its XPHOZAH® (tenapanor) for treating pediatric hyperphosphatemia.
XPHOZAH is a first-in-class medication that blocks phosphate absorption. It’s primarily used to reduce serum phosphorus in adults with chronic kidney disease on dialysis. Hyperphosphatemia, characterized by elevated phosphate levels in the blood, commonly affects patients with chronic kidney disease, especially those on maintenance dialysis. The Designation supports the development of drugs for rare diseases or conditions and includes benefits like market exclusivity and exemptions from certain fees.
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What does this mean for Ardelyx? The FDA’s designation for XPHOZAH acknowledges its potential in treating pediatric hyperphosphatemia. It could lead to potential growth, therefore positively affecting its prospects. But it’s important to note that if XPHOZAH encounters challenges in clinical development or market penetration, or if competitive treatments emerge, it could negatively impact the company.
Wedbush recently reiterated its Outperform rating on the penny stock. Meanwhile, it maintains a $9 target.
The Beauty Health Co (SKIN)
The Beauty Health Company is best known for its flagship brand Hydrafacial. A few weeks ago, it announced its financial results for the third quarter ended September 30, 2023. The company, which specializes in advanced skincare treatments and products, reported net sales of $97.4 million. This marks a 10% year-over-year increase. However, the quarter was affected by lower-than-expected U.S. revenue and significant restructuring charges.\
Even with this as the case, the growth was driven primarily by strong performance in the Asia-Pacific (APAC) and Europe, Middle East, and Africa (EMEA) regions. APAC sales increased by 63%, with China’s sales up 79%, while EMEA sales grew by 37%. Owing to some of the challenges, The Beauty Health Company revised its fiscal year 2023 net sales guidance to between $385 and $400 million. The adjusted EBITDA margin guidance was also revised to a range of 5% to 6%, and the company has suspended its long-term 2025 financial outlook.
While this was bad news at the time, traders looking at SKIN stock over the last few weeks have seen something different. Shares have climbed 114% from lows of $1.35 to highs of $2.90.
Opendoor (OPEN)
Opendoor Technologies Inc. specializes in streamlining residential real estate transactions. The company recently reported its financial results for the third quarter of 2023. Despite a significant revenue decrease to $980 million, down 71% from 3Q22 and 50% from 2Q23, the company marked a return to a positive contribution margin.
The quarter saw the sale of 2,687 homes, a decrease from previous quarters. The net loss for the quarter stood at $106 million, an improvement from the $928 million loss in 3Q22. Adjusted net loss was reported at $75 million, better than the previous year’s $328 million. The positive contribution margin of 4.4% reflects operational improvements and cost-saving measures implemented by Opendoor.
A significant drop in revenue and the decreased number of homes sold might be a near-term concern. However, the improvement in net loss and the positive contribution margin might be seen as signs of effective cost management. Whether these factors lead to cautious optimism in the market is to be seen. However, since the earnings release, OPEN stock has been on the rise, trading back above $2.70 for the first time since early October.
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Deutsche Bank recently initiated coverage on Opendoor. The firm has a Hold rating. It also set an OPEN stock forecast price target of $2.80, which is nearly the price that shares are trading at this week.
Senseonics Holdings (SENS)
Senseonics is a medical technology company specializing in the development and manufacturing of long-term, implantable continuous glucose monitoring (CGM) systems for diabetes management. Their products, including Eversense®, Eversense® XL, and Eversense® E3, are designed to offer innovative glucose management solutions to the global diabetes community.
Shares have been on the move since the company reported earnings in November. Senseonics reported its financial results for the third quarter of 2023, along with significant developments. The company generated $6.1 million in revenue for the quarter, an increase from $4.6 million in the same period in 2022. U.S. revenue rose to $3.9 million, up from $1.9 million in the previous year. However, international revenue slightly decreased to $2.2 million from $2.7 million. For the full year 2023, Senseonics expects global net revenue to be around the midpoint of the $20 million to $24 million range.
Senseonics also announced the completion of the last patient in the ENHANCE Pivotal Clinical Study’s adult cohort. They launched a direct-to-consumer U.S. advertising campaign titled ‘The CGM for Real Life’ in collaboration with Ascensia Diabetes Care. The aim is to boost awareness of Eversense’s benefits.
Adding to the optimism was the latest ratings from HC Wainwright analysts. The firm reiterated its Buy rating in November. It also maintains a $2 SENS stock forecast price target.
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