We’ve all heard the whispers and rumors about penny stocks. They’re often painted as the wild child of the investment world, captivating traders with tales of extreme breakouts and monumental breakdowns. But beyond the sensational stories, what opportunities do these underdogs really offer? And what risks should traders brace for? Let’s pull back the curtain and take a peek.
The Allure of Penny Stocks
Penny stocks, or shares trading for less than $5, are the veritable underdogs of Wall Street. These low-priced stocks often belong to smaller, lesser-known companies and typically trade outside the significant exchanges, preferring to hang out on platforms like the OTCBB or pink sheets. Though, plenty of cheap stocks are trading on the NASDAQ and NYSE. The primary allure? Their rock-bottom prices and potential for dramatic returns.
But how can we benefit from these opportunities, and how should we navigate the rollercoaster that is the stock market? The most exciting aspect of penny stocks is the potential for impressive returns. With their low entry price, even a slight increase in share value can result in significant percentage gains. For example, if a stock trading at $0.10 jumps to $0.20, you’ve doubled your investment.
Low Barrier to Entry
The small price tag for companies on any list of penny stocks allows for a lower barrier to entry. You can potentially buy a substantial number of shares without draining your wallet. This offers an excellent opportunity for newbie investors looking to get a taste of the stock market without committing hefty sums.
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Access to Emerging Industries
Penny stocks often belong to young, emerging companies. Investing in these may give you a front-row seat to innovative industries like green energy, AI, or biotech before they hit the mainstream.
Risks and Precautions Surrounding Penny Stocks
While penny stocks hold the promise of gold, they also come with pitfalls. It’s like my dad always said, “No reward without risk!”
High Volatility
Penny stocks are notorious for their high volatility. Prices can swing wildly within a short period, leading to potential gains, but also losses. It’s essential to approach these investments with an adventurous spirit, a solid plan, and never gamble with money you can’t afford to lose.
Lack of Transparency
Since these types of stocks often come from smaller, less established companies, they may lack the transparency of their big-league counterparts. This can make it tricky to get reliable information to guide investment decisions. So, remember to do your homework and tread carefully.
Scams and Frauds
“Pump and dump” scams are unfortunately not uncommon in the world of penny stocks. Fraudsters hype up a stock (the pump), artificially inflating its price. Once the price is up, they sell their shares (the dump), causing the price to plummet and leaving unsuspecting investors holding the bag. To avoid these pitfalls, always be skeptical of overly rosy predictions and too-good-to-be-true opportunities.
Penny Stocks to Watch
Investing in penny stocks can be a thrilling ride, filled with exciting possibilities and risks. The key to success? Stay informed, make well-researched decisions, and always keep your risk tolerance in mind. Today we look at a handful of penny stocks to watch.
- Archer Aviation Inc. (NYSE: ACHR)
- D-Wave Quantum Inc. (NYSE: QBTS)
- Grab Holdings Ltd. (NASDAQ: GRAB)
- Sirius XM Holdings (NASDAQ: SIRI)
Archer Aviation Inc. (ACHR)
Shares of Archer Aviation stock have soared in recent weeks. The electric vertical takeoff and landing aircraft maker is riding the eVTOL wave after recent news from Joby Aviation (NYSE: JOBY). The company announced it received a permit to begin flight testing of its first production prototype. Since then, sympathy sentiment has helped to propel companies within the niche.
In addition, Archer has reported news of its own. This week the company announced that it hosted the Federal AAM Interagency Working Group at its flight test facility recently.“It was inspiring to see the level of support from across the federal government focused on ensuring the safe entry of eVTOL aircraft into the U.S. market in 2025,” said Adam Goldstein, Founder, and CEO of Archer.
On the back of this, ACHR stock continues hovering around 2023 highs in the stock market this month. On top of that, insiders are accumulating positions. A recent 8-K reported that Adam Goldstein became the beneficial owner of approximately 50.1% of the total voting power of the Company’s stock.
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D-Wave Quantum Inc. (QBTS)
This tech company has been in and out of the spotlight, with excitement building around artificial intelligence and machine learning. “ChatGPT stocks” have gained interest thanks to the Large Language Model tech brought to light 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.
Meanwhile, QBTS stock has been rising following a mix of upbeat sentiment. The latest earnings, favorable analyst ratings, and June headlines have helped boost morale. This quarter, 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 the R&D of quantum-hybrid applications for addressing optimization in marketing campaigns. This week D-Wave restated its stance in being ready 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. According to the company, the legislation also includes an aggressive timeframe of 24 months or less for developing and deploying demos, proofs of concepts, and pilots.
Grab Holdings Ltd. (GRAB)
The “Super app company” focuses on the Southeast Asia market. It offers delivery, mobility, and digital financial services to its users. Grab began taking flight in May, thanks to headlines.
It announced a target to reach “zero packaging waste” by 2040. Many companies are working toward a more Environmental, Social & Governance (ESG) focus on appealing to specific groups of investors. To reach carbon neutrality, Grab reduced 48,000 tons of emissions in 2022. It also said that roughly 50% of its deliveries in Singapore are made via zero-emission modes of transport.
Despite a drop following earnings, GRAB stock has maintained much higher price levels since the beginning of June. Part of the excitement seems to have stemmed from a few different tailwinds, including strength in Asia-Pacific stocks. In addition, Grab also announced that its co-founder Tan Hooi Ling intends to step down this year. With the anticipation of fresh leadership, some speculatively bullish sentiment has grown in the stock market this quarter.
Sirius XM Holdings (SIRI)
Shares of Sirius XM stock have frequently been on our radar for weeks. In particular, we’ve highlighted SIRI stock among a list of penny stocks experiencing a recent uptick 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 now. 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 30.65%. Meanwhile, speculation may have begun building as the market anticipates the next round of financial results in August. Ahead of this, analysts at firms including Benchmark reiterated their stance. The firm has a Buy rating and a $6 price target.
