Penny stocks are an exciting asset class. Few places offer such great potential to score big in the stock market in such a short amount of time. On top of that, speculation plays a much more significant role in more cases than others. This is, of course, compared to broader, mid-, and large-cap stocks. You’ll hear the term “sympathy trade” thrown around a lot, and if you’re brand new to trading penny stocks, you might not understand the phenomenon.
Have you ever been scanning for names to add to your watch list and see a stock began rallying explosively out of nowhere? No news, spotty trading volume, zero filings, and not much public info to go on at all. What could attract day traders or investors to such a company? It’s more common that you see such trends with OTC penny stocks. But rest assured, there are plenty of instances where sentiment & sympathy trading goes on with stocks listed on the Nasdaq and NYSE. If you recall, we’ve written on a few of these sympathy moves before:
These are just a few of the many instances where sympathy sentiment has played a significant role in the stock market. In many cases, where there’s one big event, fast-moving stock, or notable industry trend, it can send a tidal wave of momentum into stocks that otherwise wouldn’t be trading at all.
HX Stock Surges 1,282%
Right now, there’s a trend in the stock market following a company we’ve discussed in the past, Xiaobai Maimai Inc. (NASDAQ:HX). This Chinese company has only put out a few headlines with its most recent explaining plans to enter the biotech arena. Prior to this update, the company’s core focus was on e-commerce technology.
The stock’s fundamentals might not have been as important to traders as other facets of HX stock. Other things factoring into the sentiment: the float. If you look at the share structure of HX stock, you’ll see that its outstanding share count is below 20 million, along with a few outlets showing Float figures of less than 10 million shares.
Why are low float stocks so attractive? The lower the float, the lower the overall supply of shares in the stock market. When there’s a higher-than-average level of buying momentum, you’ve got a scenario of low supply and high demand. For those who’ve taken introductory economics courses, that tends to equate to much higher prices and at a quicker rate.
Since September 21 (1-month ago), HX stock has shown us precisely the potential of low float penny stocks. Prices have surged from lows of $1.62 to highs of $22.39 on October 21, marking a move of over 1,200%.
Penny Stocks To Buy [or avoid]
This move has retail traders hunting for “the next” round of stocks that could have similar traits. In this article, we’ll take a look at a handful of names that have met the low float, China-related, technology-centered framework outlined by the HX stock trade. But keep in mind, just because they have some similarities, it doesn’t mean the same future trend is in store. I’ll leave it up to you to decide if these are the best penny stocks to buy now or avoid entirely.
Penny Stocks to Buy [or avoid] 1. Weidai Ltd (NYSE:WEI)
I’ll preface this list of penny stocks with the following: many of these companies see action in the market due to sympathy sentiment. Concerning that, many have not released headlines or meaningful company filings in quite some time or, at the very least, haven’t seen a consistent flow of information. With that being said, Weidai Ltd (NYSE:WEI) is the first name on the list. It’s a “repeat offender” when it comes to low float penny stocks that break out. Data shows WEI’s outstanding share count sitting around 70 million, however, figures regarding its float are hovering below the 10 million mark.
The company reported its 6-month operating results toward the end of August. But other than that, nothing much has been said. Wei specializes in automotive-backed financing in China. Its total revenues amounted to over $83 million for the first six months of the year. Other than this headline, not much has gotten reported by Wei heading into the last few months of the year.
2. China Finance Online (NASDAQ:JRJC)
No longer a penny stock, China Finance Online (NASDAQ:JRJC) has steadily risen over the last few months. In September, shares of JRJC stock traded as low as $4.22. This week, the former penny stock reached new highs of $10.41. Similar to Xiaobai, China Finance is a Chinese tech stock. The company specializes in web-based financial services. It provides investors with fintech-powered online access to securities trading services.
However, similar to Weidai, China Finance hasn’t been overly vocal in the news. The last major update came in September, with the company reporting that it plans to raise around $1 million for working capital. Needless to say, the surge in China tech stocks has helped boost sentiment on the low float stock.
3. Borqs Technologies (NASDAQ:BRQS)
With offices in the US, China, and India, Borqs Technologies (NASDAQ:BRQS) is more international than solely focused in Asia. BRQS stock has caught a move thanks to a few things outside this latest trend in small-cap stocks.
What’s moving BRQS right now? The tech company finalized the controlling interest in Holu Hou Energy LLC this week. Borqs explained that financial results of Holu Hou will be consolidated into the company’s this quarter. It also made mention that Holu’s revenue forecast for 2022 sits right around $48 million. This extends Borqs’ tech reach into the increasingly popular renewable energy sector right now. Holu provides solar energy and storage solutions for residential and commercial building markets.
4. ECMOHO Limited (NASDAQ:MOHO)
ECMOHO Limited (NASDAQ:MOHO) is in a similar situation as Borqs. The company hasn’t only benefited from sympathy sentiment in the stock market today. It has also seen a boost thanks to new headlines. Today the company announced a new deal with Bausch + Lomb to promote and sell its products and services on Pinduoduo, a Chinese eCommerce website. This is one of China’s largest eComm platforms, and management expects this to be a beneficial deal for ECMOHO.
CEO Zoe Wang explained, “International and domestic brands such as Puritan’s Pride, Centrum, Caltrate, Harbin Pharmaceuticals, Johnson & Johnson, Sperry, Haier Biomedical, Abbott, Omron, and now Bausch + Lomb, have established in-depth strategic partnerships with ECMOHO, where our Company provides invaluable professional health content services, health key opinion leaders (KOL) and key opinion consumers (KOC) professional matrices, as well as, through continuous exploration, in-depth operation of new media and new traffic, which together helps to empower our partner brands’ business growth in China.”
With this news and underlying bullish sentiment in Chinese penny stocks, MOHO has seen a spike during early trading in the stock market today.
What To Know About Penny Stocks
Penny stocks are well-known for their higher levels of risk. When there aren’t any external catalysts and speculation drives momentum, that presents another layer. The volatility in these cheap stocks can offer a unique opportunity to make money in a short time frame. The first step is understanding how to buy penny stocks, trade them, and repeat the process. In cases of sympathy sentiment driving moves, the breakouts can be fast and furious while the breakdown can be just as swift. So understanding the basics is very important. If you’re new to trading or new to stocks under $5, in general, check out some of these intro articles: