Whether you call them penny stocks, cheap stocks, ground floor opportunities, or …lotto tickets, there’s no denying that low-priced stocks are lighting up the scanners and screeners this month. While many traders are trying to find the next round of multi-bagger stocks ready to short squeeze like Bed Bath & Beyond (NASDAQ: BBBY) or AMC Entertainment (NYSE: AMC) did, others are looking for other catalysts.
One strategy some traders use is called Follow the Money; let’s explain.
What Is “Follow The Money” In Trading?
If you’re new to trading or haven’t heard of this strategy, let’s explain. Also, if you’re experienced in trading penny stocks, you can jump to the next section and check out the list of cheap Robinhood stocks to watch according to insiders below.
The “Follow The Money Strategy” involves searching through company filings. You’ll want to pay particularly close attention to Forms and Schedules. Here are how they break down and some of the filings you should look for:
13G & 13D Filings
We wrote an article about how to buy penny stocks like hedge funds. In it, we talked about institutions (like hedge funds) reporting their positions, purchases, and sales to the public. In this case, you’d look for Schedules like 13D, 13G, and 13F.
A Schedule 13D gets filed by an “active investor” and one owning more than 20% of a company’s outstanding shares.
A 13G pertains to “passive investors” owning less than 20% of a company’s outstanding shares. Once a “passive investor” reaches over 20% of the OS, they must start filing 13D statements. These are important because we’ll see which large funds or investors are taking a more significant position in a company. These typically lift sentiment for a given company if the firm increases its position. The opposite is true when filing a Schedule showing a decrease in ownership. This is what we saw this week from Bed Bath & Beyond investor Ryan Cohen. He dumped his shares of BBBY stock after the former penny stock rose from under $5 to $30 in the last ten days.
Schedule 13F filings are where things can become a bit more interesting. This Schedule is a quarterly report. It’s required to be filed by institutional investment managers with at least $100 million in assets under management. You might assume that “big hedge funds” aren’t buying penny stocks or don’t own penny stocks. This is where you’ll have to think again and read one of the many articles below:
- Best Penny Stocks To Buy? Einhorn, Lynch, Cohen & Dalio Own These 5
- 10 Top Penny Stocks Cathie Wood ARK Invest Owns, Time To Buy?
- 5 Top Penny Stocks To Buy According To Insiders In March 2022
- 3 Penny Stocks Cathie Wood’s ARK Invest Bought In 2021, Will You?
What Is A Form 4 Filing?
Finally, Form 4s are something experienced traders look at from time to time.
What is SEC Form 4?
ANSWER: According to the Securities And Exchange Commission, it is a “statement of changes in beneficial ownership.” It must get filed with the commission whenever a material change happens in the holdings of a company’s insiders.
One of the downsides of looking at these filings is that they are published after trades are made. So it will be up to you to decide if the data is valid when you find it. Keep in mind that these aren’t the only filing types, but they are frequently used by traders to “follow the money” while researching. You can read more about filings in the article Penny Stocks & Due Diligence: Understanding Important SEC Filings.
Best Cheap Robinhood Stocks To Buy
Now that you’ve got an understanding of this “Follow The Money Strategy,” let’s have a look at some of the popular Robinhood stocks under $5 with insider activity.
- Ribbon Communications Inc. (NASDAQ: RBBN)
- VistaGen Therapeutics Inc. (NASDAQ: VTGN)
- Summit Therapeutics Inc. (NASDAQ: SMMT)
- Pasithea Therapeutics Corp. (NASDAQ: KTTA)
Ribbon Communications Inc. (NASDAQ: RBBN)
In this list of penny stocks, we’ll discuss what these companies are doing, recent news, and then, of course, detail the insider and large investor transactions that could be on the radar for some investors. Ribbon Communications is first on the list after a steady climb since June and has built momentum in the stock market this week.
What Does Ribbon Communications Do?
Ribbon handles real-time communications and offers optical network solutions. After beating estimates for its latest second-quarter earnings, traders and institutional investors have grown more bullish on the stock. Ribbon reported an EPS of 6 cents, beating Wall Street estimates of 4 cents per share. It also reached $206 million in sales, higher than the $205.73 anticipated.
The company’s outlook on the year also anticipates $210-$225 million in revenues this quarter with an Adjusted EBITDA of $26 million to $34 million. The company is also actively raising money to foster this growth. This week Ribbon announced a $52 million private placement to fund operations and repay some debt.
Follow The Money On RBBN Stock
One of the company’s largest investors is JPMorgan Chase. It participated in this financing round, purchasing over 1.64 million shares at the $3.05 price. Swarth Investments, Ltd – another more prominent shareholder of RBBN stock – also threw its hat in the ring and snagged its own block of $1.63 million shares. Together, their participation amounted to roughly $10 million.
VistaGen Therapeutics Inc. (NASDAQ: VTGN)
What Does VistaGen Do?
VisyaGen develops treatment platforms for anxiety, depression, and other central nervous system disorders. Recent findings from a Phase 3 trial of its PH94B platform were inconsistent with previously positive Phase 2 data. While VTGN stock price took the brunt of the negative sentiment, management has remained upbeat.
Shawn Singh, Chief Executive Officer of VistaGen, discussed these results in the company’s latest earnings update, “While we examine the results of our PALISADE-1 Phase 3 study in social anxiety disorder, we have paused enrollment in our PALISADE-2 Phase 3 study and have engaged an independent biostatistician to conduct an interim analysis of data collected to date. We then plan to meet with the FDA to pursue a consensus path forward for further Phase 3 development of PH94B in social anxiety disorder.”
Follow The Money On VTGN Stock
Further emphasizing hit optimism, Singh also took part in some insider trading this month. In an August Form 4, he reported the purchase of 600,000 shares of VTGN stock at an average price of $0.172 in hits Singh Family Trust. This was a significant purchase for the Trust because it brought the total holdings to 626,234 shares of VTGN.
Summit Therapeutics Inc. (NASDAQ: SMMT)
What Does Summit Therapeutics Do?
Summit Therapeutics is building a therapeutic pipeline in oncology targeting the human gut microbiome. Its Ri-CoDIFy is currently undergoing clinical trials, and data from a Phase 3 study was discussed with the FDA in July. The two talked about the potential road to advance the platform forward with the hopeful outcome of a marketing authorization. Its current pipeline is in the infographic below:
Follow The Money On SMMT Stock
Like Ribbon, Summit also raised millions of dollars recently. CFO Ankur Dhingra, President Maky Zanganeh, and CEO Robert Duggan took part in this round. Between the three, more than $97 million of SMMT stock was purchased at $0.97. Duggan purchased the bulk (over 94 million shares).
Pasithea Therapeutics Corp. (NASDAQ: KTTA)
What Does Pasithea Therapeutics Do?
Pasithea develops treatments for psychiatric and neurological disorders. This month, new data were reported from a proof of concept study of its PAS002 as part of a vaccine program for multiple sclerosis. Pasithea’s Chairman, National Academy of Sciences Professor Lawrence Steinman, discussed the results in an August update. The data showed “that this technology has the potential to tolerize to GlialCAM, a myelin molecule that has molecular similarity to the Epstein Barr Virus that triggers MS…Remarkably, the piece of GlialCAM protein shared between EBV and white matter in the brain is also found in the pox viruses, including monkeypox. Monkeypox is rarely associated with brain inflammation, and this new technology may prove useful as a treatment for brain inflammation caused in certain viral infections.”
While KTTA hasn’t been one of the names on a list of monkeypox stocks recently, it could be something to keep in mind. Next week management presents at the International ‘From Laboratory to Clinic” conference. Preclinical proof of concept study results of its MS vaccine program are set to be delivered.
Follow The Money On KTTA Stock
This week, Eric Shahinian, a member of a group owning a significant stake in Pasithea, reported the purchase of over 155,000 shares of KTTA stock. His average price was $1.2087, bringing his indirect holdings to more than 1.6 million shares. He is the managing member of Camac Capital, LLC, the general partner of Camac Fund, and the managing member of Camac Partners, LLC.