Reddit Penny Stocks Continue Surging But Are They Worth The Risk?
The stock market continues selling off today and many penny stocks weren’t immune to this drop either. Even some of the sectors that tend to perform well in environments like this were seen pulling back during Friday’s morning session. There’s no single root cause but several moving parts to consider.
First, the most recent reaction or lack thereof by Federal Reserve Chairman, Jerome Powell didn’t warm the hearts of investors this week. His commentary on the economic outlook did very little to quell fears of rising rates. Friday morning another bomb was dropped as bond yields continue surging. The 10 year note was trading at 1.57% at 10:30 a.m. EST. This came after reaching an intraday high of 1.626%. The 30-year Treasury bond yield rose to 2.34%. These higher yields triggered more fears on the interest rate outlook and, in turn, markets continued sliding.
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Tech helped lead the charge lower on Friday. One of the benchmark Technology ETFs (NYSE: XLK) posted its 4th consecutive day of losses dropping to levels not seen since December. Thursday’s sell-off, by far, was one of the highest days of trading volume for the XLK in almost a year. In fact, the last time the ETF traded 38 million shares or more was March 23rd of 2020. So it makes sense that some traders have experienced some flashbacks to when the pandemic began hitting stocks last year.
Where Should Traders Look Next?
In an email to CNBC, Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said, “This should continue to push treasury yields higher and will present a headwind to those sectors that did so well last year like Technology, Communication Services and, to a lesser extent, Consumer Discretionary (particularly because of Amazon).”
While this doesn’t necessarily mean all penny stocks in these sectors are selling off, it could mean there’s a more negative sentiment to fight through than other sectors. Traders will likely need to be a bit pickier when it comes to making money with penny stocks while markets trade lower. For instance, one of the standout penny stocks this morning was Second Sight Medical (NASDAQ: EYES). Shares gapped up early after the company made premarket headlines. Second Sight announced that it received FDA approval for its Argus 2s retinal prosthesis system.
Right now, Second Sight is working on completion of its business combination with Pixium Vision. So as to when or if the company begins production of the newly approved hardware is still up in the air. if the combination goes through, obviously the new management will have to review the viability of the platform as it pertains to its business model. While EYES stock surged over 100%, many biotechs were getting hit hard. My point is that just because a sector is getting sold, that doesn’t mean all penny stocks follow suit.
What Penny Stocks Are Retail Traders Talking About Right Now?
This brings me to my point earlier. Retail traders continue looking for new opportunities. In this instance, many continue looking at social media outlets like Reddit to get certain ideas. There was even a new ETF launched this week that is based on the premise of trading Reddit stocks.
The VanEck Vectors Social Sentiment ETF (NYSE: BUZZ) tracks the performance of the “75 large-cap U.S. stocks which exhibit the highest degree of positive investor sentiment and bullish perception based on content aggregated from online sources including social media, news articles, blog posts, and other alternative datasets.”
The BUZZ ETF has been trading for 2 days and is down around 9% from its opening debut. This week, some of the largest holdings of the ETF included Ford (NYSE: F), DraftKings (NASDAQ: DKNG), Twitter (NYSE: TWTR), and Facebook (NASDAQ: FB). All of these stocks traded lower on Friday in tandem with the broader markets. But those on Reddit are actually looking for different names that aren’t on that BUZZ list of stocks.
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Checking out subreddits like r/PennyStocks shows that attention is more on OTC penny stocks and lower-priced NASDAQ/NYSE names right now believe it or not. In the case of OTC stocks, however, these tend to be much more high-risk, have minimal information available, and, in general, are more likely to fall victim to manipulation in certain circumstances. However, that hasn’t stopped Reddit traders from talking about these penny stocks.
Popular Penny Stocks On Reddit
While r/PennyStocks isn’t the only sub that discusses penny stocks, it is one of the larger ones. Among all of the loss porn Memery, there were a few penny stocks gaining attention.
Aside from EYES, other popular penny stocks on Reddit included:
- Enzolytics Inc. (OTC: ENZC)
- Assertio Holdings (NASDAQ: ASRT)
- Citius Pharmaceuticals (NASDAQ: CTXR)
However, none of these penny stocks were the embodiment of bullish momentum. Needless to say, these were among a list of penny stocks that were actively being discussed. Now, it’s important to keep in mind that just because they’re popular doesn’t mean they’re the best penny stocks to buy. However, they may be worth a closer look as some retail traders have begun discussions on them.
Enzolytics Inc.
This is one of the OTC penny stocks on the list. The company specializes in drug development. Its lead compound, ITV-1, is known as a “suspension of Inactivated Pepsin Fraction.” According to the company, studies have shown that it is effective in treating things like HIV/AIDS. This Inactivated Pepsin Fraction is the active ingredient in ITV-1. What’s more, is that ITV-1/IPF was tested against human coronavirus 229E Strain (HCoV-229E) and “exhibited comparable efficacy but with a 20-fold lower toxicity than the widely used anti-influenza medicine Tamiflu®.”
ENZC stock has been under considerable amounts of pressure for the better part of the last month, falling from highs of $0.958 to recent lows of $0.2204. However, the same day (3/5) it hit those lows, ENZC stock also bounced back nearly 30%. So, is momentum back in the market for this OTC penny stock, or is this just a short reprieve in a larger downtrend?
Assertio Holdings
Shares of Assertio have also been under pressure for weeks now. After reaching a high of $1.45 early last month, the penny stock has been sliding. ASRT stock reached a low on Friday of $0.76, just shy of its 50-day moving average. The commercial pharmaceutical company has been working on restructuring its business, including raising millions in capital over the last few months.
The company has built up a portfolio of branded prescription products targeting multiple indications. These include neurology, pain, and inflammation. Considering the current market conditions, it doesn’t look like ASRT stock is doing anything much different from other sector stocks. Something Redditors may be asking is, what will the future hold after this restructuring process? Is there hope, or will ASRT continue dropping?
Citius Pharmaceuticals
Finally, Citius Pharmaceuticals Inc. mirrored the market for the last few weeks. Since February 22nd, shares of CTXR stock have slid lower. One of the catalysts for this slide was the announcement of a $76.5 million raise at $1.505 per share.
Obviously, when companies raise money, it can add to the potential for dilution in the market and, in turn, potentially lower prices due to more shares being sold. However, on the other side of this event comes fresh capital. In this case, Citius earmarked some of the proceeds for things like pre-clinical and clinical development of its product candidates.
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Next week the company presents at the H.C. Wainwright Global Life Sciences Conference. On March 9th, Citius will give an overview and an update on its pipeline, including lead product, Mino-Lok, which is currently in Phase 3 trials. Mino-Lok is Citius’ antibiotic lock solution used to treat patients with catheter-related bloodstream infections.
