Today we are diving into the world of penny stocks. This sector has a notorious reputation in the market, and rightfully so – it can be volatile and risky. However, with the right approach, a level head, and disciplined strategies, penny stocks can offer some potential opportunities. So, let’s get started.
Defining Penny Stocks
Penny stocks, in simple terms, are shares of small companies that typically trade for less than $5 per share. They are primarily traded on over-the-counter (OTC) markets and some on major exchanges. The allure of penny stocks is often in their low share price, which gives the illusion of significant potential upside. However, they also come with a high degree of risk and volatility.
Finding Prospective Penny Stocks
Identifying prospective penny stocks involves extensive research. You should understand the company’s business model, its financial health, and industry positioning. Regularly check financial news, watchlists, forums, and stock screeners to stay updated on promising penny stocks.
Key factors to consider are increasing trading volumes, significant news or catalysts (like a new contract, product, or earnings report), and strong technical indicators. Remember, not all penny stocks are created equal. Your job is to sift through a sea of potential duds to find those hidden gems.
Compiling a list of potential penny stocks to watch requires a strategic approach. The list should be diverse, including stocks from different sectors to hedge against industry-specific risks. Regularly update your list, add new promising stocks, and remove those that no longer meet your criteria.
Trading Penny Stocks
When trading penny stocks, you must always remember this golden rule: protect your capital. This rule is even more crucial with penny stocks due to their inherent volatility and unpredictability. Use limit orders to control the price at which you buy or sell and always have a stop-loss order in place.
Try to understand the stock’s trading pattern and don’t rush. Patience is a virtue in the world of penny stocks, and impulse trades can be hazardous. Do not buy into the hype blindly, base your trades on your research, analysis, and trading plan. Many instances can show significant volatility and moments where breakouts can happen quickly.
Look at one of today’s most active penny stocks, Black Diamond Therapeutics (NASDAQ: BDTX). Shares surged over 200% after the company announced new data from a current non-small cell lung cancer treatment trial. This one piece of news sparked a massive rally in the biotech stock, so much so that it left the sub-$5 range.
Handling the Risk of Penny Stocks
Risk management with penny stocks is non-negotiable. Given their volatility, penny stocks can move rapidly in either direction. Setting a stop-loss order can help limit potential losses, while a take-profit order can ensure you lock in gains when the stock reaches your target price.
Never risk more than a small percentage of your portfolio on a single stock trade. This way, even if the trade goes south, you won’t be wiped out.
Making Money with Penny Stocks
The secret to making money with penny stocks lies in consistent, disciplined trading strategies. It’s not about hitting a jackpot on a single trade, but about smaller, more consistent gains over time.
Always conduct thorough research, manage your risk, and keep emotions out of your trading decisions. It’s also crucial to learn from your trades – both successful ones and, more importantly, unsuccessful ones.
While penny stocks come with high risk, they also present opportunities for those willing to put in the work and manage their risks wisely. Stay patient, be disciplined, and keep educating yourself. At True Trading Group, we are with you every step of the way in your trading journey.
Penny Stocks To Watch
Sirius XM Holdings Inc. (SIRI)
We discussed Sirius XM Holdings earlier this week in our article 3 Hot Penny Stocks to Watch Before Next Week. In it, we highlighted SIRI stock among a list of penny stocks experiencing a recent, sustained uptrend in price. Shares hovered below the $3.70 mark a few weeks ago and experienced a steep downturn at the beginning of this year. It was primarily due to an economic slump and unimpressive earnings, which sent some investors scurrying for safer grounds.
The case for SIRI stock is a bit muddled since there hasn’t been any significant improvement in earnings. But the overall sentiment in the stock market appears to have lightened, at least for the time being. In an interview with CNBC in April, CEO Jennifer Witz said that the quarter itself was expected and the rest of the year is expecting growth.
“Really what we’re trying to do is set the company up for future growth…The economic model is robust as ever.”
Attention has primarily been focused on the short interest in SIRI stock. The most recent data from Fintel reveals a short float of about 31.7% on the penny stock. However, TD Ameritrade data paints a slightly different picture, indicating a marginally higher figure at approximately 32.6%. Meanwhile, speculation may have begun building as the market anticipates the next round of financial results in August.
D-Wave Quantum Inc. (QBTS)
D-Wave Quantum has been in and out of the spotlight as the conversation around artificial intelligence and machine remains red hot. “ChatGPT stocks” have gained interest thanks to the Large Language Model tech revealed earlier this year. D-Wave launched its hybrid solver plug-in feature selection as part of its focus on aiding companies to leverage quantum technology to streamline machine learning application development.
Over the last few weeks, QBTS stock has been rising following a mix of upbeat sentiment stemming from earnings, favorable analyst ratings, and June headlines. This month, in particular, news that D-Wave is partnering with Interpublic Group (NYSE: IPG) stoked an already warm fire for the penny stock.
The two companies plan on collaborating on R&D of quantum-hybrid applications for addressing optimization in marketing campaigns. This week D-Wave restated its stance in being at the ready to to collaborate with the U.S. government to construct quantum computing applications in aiding public sector needs. This comes after the National Defense Authorization Act (NDAA) and the FY24 Energy and Water Appropriations bill in the House of Representatives both advanced policies. These include the development of near-term quantum applications. The legislation also includes an aggressive timeframe of 24 months or less for developing and deploying demos, proofs of concepts, and pilots, according to the company.
Opendoor Technologies (OPEN)
Residential real estate eCommerce company Opendoor continued trading higher as the penny stock maintained its recent uptrend. The latest move began shortly after it reported first-quarter earnings results, which helped bring some optimism to the beaten-down stock.
Opendoor beat earnings per share and sales estimates during a topsy-turvy period in the real estate market. “Our Q1 results demonstrate our progress in navigating the housing market transition against an uncertain macro backdrop. We exceeded our sell-through expectations for our longest-held homes and continued to build a new book of inventory with strong margin performance. We also took further actions to right-size our cost structure,” explained CEO Carrie Wheeler.
Opendoor also gave 2023 guidance. It expects revenue to come in between $1.75 and $1.85 billion. The 2023 Adjusted EBITDA is anticipated to be between $(180) million to $(200) million. There’s also attention being placed on OPEN stock’s short interest. According to the data from TD Ameritrade, the penny stock’s short float percentage sits around 13%.