Trading Penny Stocks? Check This Out Before Investing
With penny stocks, we’ve all heard both the massive success stories, and the complete opposite. But, most of the time with stocks under $5, there are plenty of ways to avoid potential losses and increase the chances of profitability.
A few days ago, we covered how to make a penny stock watchlist. However, before you begin to make a list of penny stocks, you should consider an overview of the most popular industries right now. While we won’t cover everything, let’s discuss a few sectors where investors have been looking for valuable penny stocks to buy. It’s worth noting that this is always subject to change.[Read More] 4 Penny Stocks On Robinhood To Buy Under $1; 50%-270% Price Targets
Because of the fast paced nature of investing in stocks under $5, things can change on a daily basis. For this reason, it’s always pertinent to use a combination of market research and a proper trading education. These two aspects can help to make you competitive with even the best traders out there. Now, there are a few industries that penny stock investors should consider.
First, is biotech. Biotech penny stocks have become a hot topic ever since the Covid pandemic began last year. Now, despite a company’s involvement in producing a treatment or vaccine for the coronavirus, biotech stocks remain extremely popular.
Next, we have tech. Tech stocks have also become popular during the pandemic as a result of increased demand. This demand increase is due to widespread stay-at-home, work-from-home and education-from-home trends that have occurred in that time frame.
Lastly, we can’t talk about penny stocks in 2021 without mentioning blockchain stocks and cryptocurrency-involved companies. This is a fad that began with the adoption of NFTs and crypto’s like DogeCoin. And now only a few months later, it looks like it is here to stay. Considering all of this, let’s take a closer look at these sectors.
3 Popular Industries to Find Potentially Profitable Penny Stocks In
- Biotech Penny Stocks
- Tech Penny Stocks
- Blockchain and Cryptocurrency Penny Stocks
1. Biotech Penny Stocks
Biotech penny stocks are some of the most popular securities we’ve seen in the past few years. While they have remained at top of mind for years, the real momentum started when the pandemic began last year. During that time, investors were focused on finding biotech and biopharmaceutical companies involved in the pandemic. This includes diagnostics, vaccine production and development, Covid treatments and more. And while companies involved in this have remained notable, now, investors are focused on all types of biotech businesses.[Read More] Top Penny Stocks to Buy? 4 Biotech Stocks to Watch Before May 2021
When picking a biotech stock to buy, investors need to consider a few factors. For one, what and how many compounds or tech products does it have in its pipeline? This is important as it can tell you the potential market size of a product and the overall potential of the company in the sector that it works in.
Second, investors need to look at how far along its products are in the approval process. While some companies have several medicines in Phase 3 trials, others only have compounds in the early stages of approval. Because the FDA approval process can take years, this is an important step to understand.
Lastly, prospective investors should look at balance sheets to determine what type and how much funding a company has. Has it just engaged in any offerings? Is there any share dilution to worry about? These are important questions that all traders should figure out.
2. Tech Penny Stocks
Picking tech penny stocks to buy can be similar to with biotech stocks. However, the aspects to look out for can be quite different. To start, investors should identify what type of tech company it is. For example, on one hand we have software companies. These are businesses that only produce software for either consumers or businesses to use.
On the other hand, we have those producing physical products. These products could be for consumer markets, industrial, or business purposes as well. Additionally, there are some companies that operate in both.[Read More] Top Tech Penny Stocks to Buy This Year? One Up 102% YTD
It’s important to distinguish these categories as each can have its own volatility and forward value. With tech stocks, we also have to consider the high volatility. Because they tend to release information regularly, prices can fluctuate quickly and by large amounts. However, this is typical of all stocks under $5, and not just ones in the tech industry.
As with biotech stocks, investors should make sure to look at the financials of the company they intend to invest in. This includes knowing EPS, profitability, outstanding debt, cash balances and more. With this information, it can be much easier to feel confident in your decision. Considering all of these factors, tech remains one of the most popular industries for investors to find potentially valuable stocks.
3. Blockchain and Cryptocurrency Penny Stocks
This is a relative new-comer on the penny stock scene. While blockchain has been around for years, in 2020, its popularity has greatly increased. This began with the massive price increase of Dogecoin and Bitcoin, as well as other, lesser known cryptocurrencies. In addition, the role of NFTs has sharply risen in the past few months.
For those who don’t know, NFTs or non-fungible tokens are a way to verify digital ownership of a file. Companies have transitioned to using this technology to sell everything from digital art to concert tickets and even licensing. Because it is so new, companies are still working out the details of how to utilize this practice. However, with blockchain as a whole, the potential is almost limitless.
With blockchain and cryptocurrency penny stocks, investors should thoroughly understand the company’s role. This means knowing how it is related to crypto or blockchain, and what its exposure to the industry is. One thing to consider is whether or not it deals directly with any cryptocurrencies. Because coins like Bitcoin and Ethereum tend to be highly volatile, companies with exposure to them, can have the same heightened volatility. This is not necessarily a bad thing, but it is worth considering.
3 Penny Stocks to Watch
- BIOTECH: T2 Biosystems Inc. (NASDAQ: TTOO)
- TECH: Cinedigm Corp. (NASDAQ: CIDM)
- BLOCKCHAIN & CRYPTO: ZW Data Action Technologies Inc. (NASDAQ: CNET)
At the end of the day, no matter what industry you choose to invest in, the opportunity is abound. But, the most important step is always to do the proper research before investing. This means knowing the company and where it and the industry could be headed. With all of this in mind, which industry will you choose to buy penny stocks in?