Should You Buy Penny Stocks During Earnings Season?
Penny stocks are hot right now. If you looked at the stock market today, the Russell 2000 ETF (IWM ETF Report) jumped more than 1.6% on August 3rd. This far-outpaced the S&P 500 ETF (SPY ETF Report) as well as the tech-heavy Invesco QQQ (QQQ ETF Report). Each gained around 0.70% and 1.35% respectively. While the Russell doesn’t follow all penny stocks, it has been a good gauge of interest among retail traders. This marks the 7th day out of the last 10 days that the IWM closed green.
So is it time to find penny stocks to buy right now? That answer is 100% up to you and your personal trading strategy. If you are ok with high-risk trades in exchange for the potential high-reward, then yes, it might not be a bad idea to look at some of these cheap stocks. But if you’re not well-versed in this arena, I’d suggest taking some time to educate yourself a bit.
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I don’t mean in the literal sense of how to invest, because I’m guessing you already have the basics covered. What I’m referring to is the dynamics of trading penny stocks. Understanding how volatility plays a role, how rumors play a role, and how speculation holds a big position in how people trade stocks under $5.
Learn The Basics Of Penny Stocks First
Feel free to take a look at some of the penny stock basics articles on the site. You can also download a 60+ page eBook all about trading penny stocks written by PennyStocks.com. On the other hand, you might also choose to learn directly from an experienced trader or group of traders. Whatever the case is, you can’t go wrong with learning the ropes before jumping blindly into penny stocks. With that part out of the way, let’s get down to some business. Earnings season is a busy time of each quarter.
We see which companies made it big and which came up short. This can create things known as “sympathy trades”. When larger companies report strong earnings, that might create a trickledown effect on lower-priced stocks. We saw this with EV penny stocks earlier this year after Tesla came out with its results. We also saw it with broader tech penny stocks as companies like Apple and Amazon reported at the end of July.
Aside from sympathy trades, we’ve also got to consider the companies themselves. Though lower in price, numerous companies have established themselves in their respective industries. As such, earnings play a bigger and bigger role in each period. Let’s take a look at a few penny stocks during earnings season. Are they a buy or sell right now?
Penny Stocks To Buy, Sell, Or Hold: Durect Corp
Durect Corp (DRRX Stock Report) reported earnings for the second quarter on Monday. Revenues came in at $25.8 million with EPS standing at $0.07. Not only did Durect increase EPS from ($0.04) last year, sales were uncomparable. Analysts expected sales to come in around $11.48 million. Durect beat these expectations by 125% and it was an increase of nearly 550% compared to its $3.98 million in sales from last year’s Q2.
It’s been a wild year for this penny stock. After a big surge to close out 2019, DRRX dropped during the next quarter to follow. The low ended up being $0.95 in mid-March as most other stocks dropped too. Since then the company has been working on its liver disease treatments. Starting in July, the company began recruiting for its drug trial for liver or kidney injury among COVID-19 patients to be treated with DUR-928. A total of approximately 80 patients are planned to be enrolled into two study treatment groups.
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Its progress has also attracted new analysts as well. Oppenheimer initiated coverage on Durect. The firm gave it an Outperform rating as well as a $7 price target. Considering the recent developments with the company and new analyst coverage, is this one of the penny stocks on your list to buy, sell, or hold?
Penny Stocks To Buy, Sell, Or Hold: YRC Worldwide Inc.
YRC Worldwide Inc. (YRCW Stock Report) made headlines earlier this year for a multi-million dollar government loan. On July 1, the Overland Park, Kansas-based company made the announcement. YRC announced that the U.S. Department of the Treasury “intends to provide a $700 million loan to YRCW under authorization provided by Subtitle A of Title IV of the CARES Act.”
That saw YRCW stock jump from $1.85 the day prior to highs of $3.55 on the 1st. Since then, shares have traded relatively sideways, spiking one last time to a $3.69 high before coming back to trading around $2.70 for the last few weeks. Despite the headlines, the bigger drop came after The Wall Street Journal revealed that a congressional panel said the trucking company didn’t meet the test to be designated as essential to national security. Despite this being a headline, the company reported the opposite in its recently filed quarterly.
Specifically, the company said, on July 7th, it successfully secured the loan with the United States Department of Treasury “for up to $700 million” under the CARES Act. Furthermore, from an operations standpoint, YRC beat on analyst estimates. During Q2, analysts expected YRC to report an EPS of ($1.38) and instead, it reported ($1.09).
Sales came it at $1.01 billion which beat consensus estimates by about half of a percent. However, these were lower compared to the same period a year ago. Needless to say, YRCW stock reacted positively to these results. Will this continue through the month of August?
Penny Stocks To Buy, Sell, Or Hold: Cocrystal Pharma
While this isn’t an earnings catalyst, it could be considered a news catalyst in my opinion. Cocrystal Pharma (COCP Stock Report) has been on the list of penny stocks to watch for a while now. In fact, COCP stock was one of the first biotech penny stocks that ran big this year. We first started discussing it in February when it was trading around $0.60. At the time, Cocrystal had just closed a financing deal. Obviously a lot has happened since then by just looking at the chart. COCP stock ran as high as $2.50 then ended up sliding down to around $0.80 in March.
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The company itself isn’t very active on the press wires. But obviously there’ve been a lot of positive developments in the COVID-19 arena. Cocrystal initiated its preclinical studies of COVID-19 inhibitors during Q2 2020. It further intends to identify more COVID-19 inhibitors utilizing its proprietary platform technology over the course of the second and third quarters of this year. The company said it planned to identify additional inhibitors using its proprietary platform technology in Q3 2020 and anticipates the selection of its lead preclinical molecule in Q4 2020.
So what’s behind the recent surge? On August 3rd, COCP stock broke out late in the afternoon. The penny stock ended up closing out at $2.36 and continued even higher after the close. In a release titled, “New published study from K-State virologists identifies potential COVID-19 treatment,” details shed some light on the latest momentum.
Yunjeong Kim and Kyeong-Ok “KC” Chang, virologists in the College of Veterinary Medicine at Kansas State University, have published a study showing a possible therapeutic treatment for COVID-19. Come to find out, the “new compounds” in the publication are exclusively licensed and being developed by Cocrystal Pharma for COVID-19.