Investing in the stock market is no child’s play; it can sometimes seem like a rollercoaster ride. While some investors prefer to play it safe with large, blue-chip stocks, others seek the thrill of the high-risk, high-reward realm of penny stocks. Today, we’ll delve into the enticing world of cheap stocks under $1, outline the associated risks and potential, and offer some pointers on how to find the best ones to invest in.
What are Penny Stocks?
Penny stocks, as the name suggests, are typically low-priced, small-cap stocks priced under $5 per share, as per the U.S. Securities and Exchange Commission’s definition. For this discussion, we’re focusing on those under $1, which are even more speculative. These stocks are generally from small, less established companies and are traded over-the-counter (OTC) or through smaller exchanges.
The Risks Of Trading Penny Stocks
As with any investment, there’s a flip side to the potential profits penny stocks can bring: the risks. Here are a few significant ones:
- Volatility: Penny stocks are notoriously volatile. Their prices can surge or plummet dramatically within short periods, making them a risky proposition.
- Limited Information: Since many companies offering penny stocks are smaller and less established, there’s often a lack of readily available and reliable information about them. This opacity makes it harder for investors to make informed decisions.
- Liquidity: Penny stocks often suffer from low liquidity, making it difficult for investors to sell their holdings when they wish.
- Scams: The penny stock market is notorious for “pump and dump” schemes where fraudsters artificially inflate the stock price before selling their shares, causing the price to crash and leaving other investors in the lurch.
The Potential Of Cheap Stocks
Despite these risks, the lure of penny stocks remains strong. The primary reason? Their potential for substantial returns.
- High Return Potential: Because of their low price, even a small absolute increase can mean a significant percentage gain.
- Low Barrier to Entry: Their low cost also makes them accessible to all, even those with limited capital.
- Opportunity to Discover the ‘Next Big Thing’: Small, innovative companies can sometimes disrupt entire industries. Early investors in such companies, often penny stock investors, stand to gain enormously if the companies succeed.
How to Find the Best Penny Stocks Under $1
Here’s a step-by-step guide to help you identify promising penny stocks under $1:
- Do Your Homework: Start with thorough research. Look into the company’s fundamentals, industry standing, and financial health.
- Evaluate the Business Model: The best penny stocks are often those from companies with a robust and sustainable business model, even if they’re in the early stages of development.
- Monitor Analyst Ratings and Reviews: Watch what market experts say about your chosen stocks.
- Watch for Catalysts: Significant events or news can trigger rapid price changes. Stay updated about any potential catalysts.
- Diversify: Like any other investment, don’t put all your eggs in one basket. Diversify your penny stock portfolio to mitigate risks.
Remember, finding the best penny stocks requires diligence, patience, and a risk tolerance that can stomach potential losses. It’s essential to tread carefully, do your due diligence, and never invest more than you can afford to lose.
Investing in penny stocks under $1 might seem like a gamble, but with careful planning and strategy, it could potentially yield significant returns. That being said, the world of penny stocks is not for everyone. Make sure you fully understand the risks involved and have the necessary knowledge and resources to navigate it before you dive in.
Penny Stocks Under $1 To Watch
- Faraday Future Intelligent Electric (NASDAQ: FFIE)
- Senseonics Holdings Inc. (NYSEAMERICAN: SENS)
- Hycroft Mining Holding Corp. (NASDAQ: HYMC)
Faraday Future Intelligent Electric (FFIE)
EV stocks have come back into focus as shares of larger companies like Tesla and Lucide rebound. Faraday’s focus has been on the commercial release of their top electric vehicle (EV), the FF 91 Futurist.
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Earlier this year, the company signed the first sales contract for the FF 91 2.0 Futurist Alliance. Faraday explains it as “the first of its kind, All-Ability aiHypercar” FF 91 2.0 Futurist Alliance. It also comes with a hefty price tag of $309,000.
“I’m excited to see our first user now under contract for our FF 91 and our continued progress on the first phase of our delivery plan. The FF 91 was envisioned six years ago, and since then, we have continuously upgraded our vehicle,” said YT Jia, FF Founder & CPUO.
Meanwhile, the more recent focus has been on the management shuffle. The company appointed an interim CFO and restated the previously issued financials. With Tesla earnings coming up, chances are that sympathy sentiment is having its time in the spotlight and influencing other stocks in the sector.
Senseonics Holdings Inc. (SENS)
SENS stock has continued bouncing back after a long stint of selling pressure this year. The company develops implantable glucose monitoring systems for diabetes patients. Its Eversense, Eversense XL, and Eversense E3 are placed under the skin and communicate with a smart transmitter worn over the sensor. Updates are sent every five minutes to a mobile app for users to monitor.
One of the things that retail traders are watching for is the SENS stock short. According to data from sources like Fintel and TDAmeritrade, the Senseonics short float is around 9%. Given the longer-term selling pressure in the stock market earlier this year, short-squeeze stocks are back in focus.
Other than the short, SENS stock has a more near-term potential catalyst. Its first quarter 2023 financial results were received well. Furthermore, about a month later, we see the company report that UnitedHealthcare will start covering the Eversense E3 system. This seems to have supported recent analyst sentiment from HC Wainwright, which reiterated a Buy rating on the penny sock. The firm also has a target of $3.
Hycroft Mining Holding Corp. (HYMC)
Once known as the “AMC gold stock,” Hycroft Mining has reached several milestones on its own accord, which have come back into light recently. Why was it the “AMC gold stock,” though? We outlined the details of this relationship in our article “AMC Entertainment (AMC) Sees Golden Opportunity In Penny Stocks,” when the initial deal came to light. At the time, AMC Entertainment bought a stake in the small-cap mining penny stock. The deal saw AMC and metals investor Eric Sprott investing roughly $56 million into Hycroft.
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While that period has come and gone, there are still traders who are following developments outside of any AMC-related hype. In a corporate update earlier this month, Diane Garrett, President, and CEO, explained, “Hycroft is in a unique and enviable position in the precious metals industry. Not only do we own one of the world’s largest gold and silver deposits, we also have over $117 million in cash as of June 30, 2023, with no principal debt payments due until 2027…The Company’s strategic focus is to create shareholder value by developing the Hycroft Mine to generate significant positive cash flows and build a successful multi-asset mining company.”
With the price of gold up significantly, year-to-date, gold stocks have shined brighter in 2023. As a result, some of the juniors are on the list of penny stocks to watch this year.
