Investing in Penny Stocks in Summer 2021
Penny stocks are some of the hottest commodities of the year. With massive rises in value in only a short time frame and low prices, penny stocks remain popular among all types of investors. While these stocks have gotten a bad rap over the past few years, there is no reason to be scared of penny stocks.
Let’s start by identifying what they are. Penny stocks are any stocks trading under $5. These could be NASDAQ, NYSE, and most likely OTC listed stocks. One thing to keep note of is liquidity. If the volume is lower than a few hundred thousand, it may be difficult to buy or sell shares when the time comes.
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However, this should not be too much of a worry if a stock is listed on a large exchange, as this mostly pertains to OTC listed penny stocks. The next thing to consider is speculation and what speculative factors are impacting a penny stock. This could be company-specific, industry-specific, or even global economic trends. These tend to have a large role in how penny stocks trade and why prices move. The last aspect for investors to note is current market conditions.
Right now we have an influx of retail traders. This has appeared in stocks such as GameStop Corp. (NYSE: GME), BlackBerry Ltd, (NYSE: BB), AMC Entertainment Holdings Inc. (NYSE: AMC), and Sundial Growers (NASDAQ: SNDL), among others. Because there is so much movement in the market right now, paying attention to everything can be the difference between profits and losses. Considering this, let’s take a look at what penny stocks are and whether investing in them is right for you.
Ins and Outs of Investing in Penny Stocks in 2021
- What are Penny Stocks?
- Are Penny Stocks Worth it?
- Investing in Penny Stocks in Summer 2021
What Are Penny Stocks?
As stated earlier, the definition of penny stocks is any security trading under $5 per share. This leaves the options open to hundreds if we consider only the NASDAQ and NYSE, and thousands if we bring in the OTC exchange. While there are plenty of penny stocks to watch on the NASDAQ and NYSE, most people associate penny stocks with the OTC exchange.
OTC or over-the-counter is a place where companies can go public without the need for a major IPO and the stringent listing requirements of a large U.S. exchange. This is the main reason that there are so many penny stocks listed on the OTC. As mentioned previously, one of the important things to consider with penny stocks is liquidity. Liquidity is basically how easy it is to buy or sell a stock, and it directly ties into volume. Volume is the amount of shares trading hands over a given trading day.
So, for example, a blue cap stock could trade upwards of a few million shares on a great day. Whereas, an OTC stock could trade a few hundred thousand to the hundreds of millions. If a stock is trending heavily, it can trade millions of shares, indicating high ease of buying and selling.
However, if a stock is trading under a few hundred thousand or even in the tens of thousands, buying and selling it can be extremely difficult. This should not serve to scare you out of buying penny stocks, but rather inform you as to what to look for. So, while penny stocks have gotten a bad name in the past few decades, the reality is that any stocks under $5 are penny stocks.
Are Penny Stocks Worth It?
This is a tough question to answer because every investor is different. But, let’s define the two main types of investors. On one hand, we have short-term investors or swing traders. These are the most common traders you’ll see buying and selling penny stocks. This strategy can be good if you are interested in high volatility stocks, and plan to buy or sell in short periods. However, if you’re more interested in holding, let’s talk about long-term investing. This is the type of trading that involves careful research into each and every company.
Once this research is done, these investors will buy a chunk of shares and hope for the best in the long term. This can also be a great strategy with penny stocks as we often see these securities traverse the $5 threshold. Both of these types of investors can make money with penny stocks, but the company one plans to invest in should align with their strategy. Many investors will look for penny stocks that are popular on social media. This is a decent way to make a watchlist, but it should only be one component of your overall strategy.
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For example, take a look at Orphazyme ADR (NASDAQ: ORPH). After shooting up by almost 300% in a single day last week, shares have since declined by almost 65%. If you were swing trading ORPH stock, you may have made money. However, if you planned to hold it for the long term, you likely would have done the opposite.
So, before buying any penny stocks, understand who you are as a trader. And, understand your strategy thoroughly and use it. Additionally, never trade with emotion. This will always be the downfall of anyone trading penny stocks or any stocks for the matter. The fear of missing out or FOMO is an instant one-way trip to loss town and should be avoided at all costs. So, with this in mind, what do you think? Are penny stocks worth it?
Investing in Penny Stocks in Summer 2021
Investing in penny stocks in Summer 2021 can be tricky. However, let’s go over a few of the events that are occurring right now, to get a better idea of what to expect shortly. The first and most obvious aspect to consider is Covid. With case numbers dropping every day, many believe that we are witnessing the light at the end of the tunnel. This has resulted in energy penny stocks, biotech penny stocks, and others all pushing up in several recent trading sessions.
This includes companies like Sesen Bio Inc. (NASDAQ: SESN), Tellurian Inc. (NASDAQ: TELL), and NexGen Energy Ltd. (NYSE: NXE). The next thing to consider is the fear of long term inflation. Despite Fed. Chair Jerome Powell working to curb these fears, many believe that inflation could rise in the coming months to years. This is likely, however, it may not play a role in the stock market for quite some time. Large economic factors like this usually take months or even years to take effect. So, this should not be too much of a worry right now.
The last thing to consider is the effect of penny stocks on Reddit and those trading on Robinhood. These two platforms have combined to create meme stocks, which we discussed earlier. With these stocks, it’s important to consider how volatile they are, and how quickly they move. But, if you are watching the market like a hawk, this should be easy to keep track of. With all of this in mind, investing in penny stocks in Summer 2021 should be an exciting time. But, stay up to date, and make sure you continue to monitor all events going on.
Should You Invest in Penny Stocks?
Investing in penny stocks is all about calculated risk. While stocks under $5 are notoriously risky, they can provide room for big gains (and big losses). But, if you have a trading strategy on hand and a method to use, unexpected moves in your portfolio can be largely avoided.
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So, while investing in penny stocks is a challenge, keeping all of the above info in mind can be a great way to stay ahead of the game. After careful consideration, should you invest in penny stocks?
