A Beginner’s Guide to Investing in Penny Stocks in 2023
Penny stocks remain an alluring yet high-risk asset class for many novice investors. With share prices under $5, penny stocks appear affordable but bring higher volatility. Today we cover basics, reasons to consider trading them, tips for analysis and picking winning penny stocks, common trading strategies, useful tools, potential risks, and a list of penny stocks to watch with recent catalysts. Use this information to make informed decisions when venturing into penny stocks as a beginner.
What Are Penny Stocks?
Penny stocks belong to relatively small, lesser-known companies that don’t typically trade on major exchanges like the NYSE or Nasdaq. However, you can find micro-cap and small-cap stocks priced under $5 across various markets and exchanges. There are thousands of OTC penny stocks trading daily with average volumes over 250,000 shares per day. Their low nominal share value makes penny stocks attractive on a budget. However, insufficient financial data, lower liquidity, and lack of analyst coverage associated with these cheap stocks can heighten risks.
Why Consider Trading Penny Stocks?
Penny stocks offer certain advantages that attract novice investors. Firstly, the affordability of penny stocks allows you to purchase significantly more shares due to the low prices, enabling portfolio diversification on a limited budget.
Secondly, even minor price gains can result in exponential percentage returns owing to the low cost basis, providing the potential for higher profits. Lastly, penny stocks provide exposure to emerging industries, innovative startups, and new trends before they become mainstream. However, penny stocks are highly speculative.
How To Pick Penny Stocks To Watch
Picking winning penny stocks takes research and diligence. Here are some tips:
Focus on stocks in growing sectors like tech, biotech, and mining. Check technical indicators like trading volumes over 500k, support/resistance levels, moving averages, RSI under 70, and bullish chart patterns using technical analysis.
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Research business fundamentals and focus on transparent operations, experienced management, promising products/services, and maybe even institutional ownership. Monitor SEC filings, press releases, clinical trials, M&A news, product launches, etc. that may act as catalysts.
In this article, we’ll look at a few of the most popular penny stocks today. We dive into recent milestones and potential catalysts that could be playing a role. Then you can decide if they deserve a place on your list of penny stocks to watch or not.
Penny Stocks To Watch
- Canopy Growth (NASDAQ: CGC)
- Wheels Up Experience Inc. (NYSE: UP)
- NeuBase Therapeutics (NASDAQ: NBSE)
Canopy Growth (CGC)
Canopy Growth continues its latest rally amid cannabis industry news speculation. Since the beginning of September, CGC stock has climbed back from levels below $1. The trend remains strong heading into the middle of September.
Canopy recently launched distillate-infused pre-rolls. These will have up to 39% THC under its Tweed, 7ACRES, and Spectrum Therapeutics brands. This product news, together with speculation around cannabis legislation, has boosted Canopy’s stock this month. As with previous marijuana stock rallies, whether the action can last remains to be seen.
This week Canopy reported that it will stop funding BioSteel to continue its focus on North American cannabis leadership. Specifically, CEO David Klein explained, “Canopy Growth has marked yet another major milestone in our transformation plan, as while BioSteel’s business has shown significant year-over-year revenue growth, and we believe the brand remains an attractive asset, it does not align with Canopy Growth’s cannabis-focused asset-light strategy. We have repeatedly demonstrated that we will take decisive action to enhance our profitability and ensure we are focused and positioned to be a leader in the North American cannabis sector.”
Anyone watching CGC stock should also be aware that on September 25th, shareholders will vote in the annual general and special meeting. Anyone holding CGC stock is being asked to approve, among other things, to amend the articles of the Company to consolidate the Company’s issued and outstanding common shares.
Wheels Up Experience Inc. (UP)
Shares of Wheels Up have been on the move in the stock market this month. A mix of earnings speculation and stock market news have helped lift UP stock (all joking aside). The company is a private aviation provider with on-demand services offered in the US. It gives access to a large fleet with membership access, charters, and aircraft management services. Wheels Up also has strategic partnerships with Delta Air Lines.
Despite posting less-than-attractive earnings results, UP stock rebounded strongly after its latest update.
Last month Wheels Up Experience inked a deal in principle with Delta Air Lines (NYSE: DAL), Certares Management, and Knighthead Capital to co-lead a $500 million facility to speed up the turnaround of Wheels Up. Funding provided by Delta, certain affiliates of Certares and Knighthead, and other partners is expected to provide the company the stability to execute on its strategic vision over the long term,” the companies said in a statement.
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Following a steep sell-off on Wednesday, UP stock is reversing course. This is due, in part, to news of a new CEO, George N. Mattson. Delta CEO Ed Bastian explained, “With new leadership in place, Wheels Up is well-positioned to drive strategic, operational, and financial improvements for its customers and stakeholders in the months and years ahead.”
NeuBase Therapeutics (NBSE)
Shares of NeuBase Therapeutics popped on Thursday. This was a warm welcome after the last week of selling off following a key milestone update. The company designs optimal ways of delivering genetic drugs and has been in the middle of a proposed deal with Symetryx. In particular, Symetryx reported taking a 20% stake in NBSE stock earlier this month, which helped propel momentum. The market speculated that a deal was all but complete.
However, news from NeuBase threw ice on the matter in saying it didn’t believe that shareholder value would be enhanced by issuing a special dividend to Symetryx and will continue seeking an open dialogue. Fast-forward to this week and another filing revealed that on September 13th, Symetryx sent an email to NeuBase with a proposal. In it, the company proposed a potential merger candidate and said that it would facilitate an introduction if there was interest.
So far, no further comments have come from NeuBase. However, that doesn’t stop the market from further speculating on the matter. Given the volatile situation, it makes sense that NBSE stock is experiencing quick moves in either direction recently,
Penny Stock Trading Strategies
Here are two common trading strategies used by penny stock investors:
Swing Trading – Take medium-term positions lasting days to weeks. Identify support and resistance levels to buy on dips and sell on rips for quick profits. Breakout Trading – Trade momentum by identifying penny stocks showing increased volatility and trading volume. Buy when stocks break above key levels.
Both rely on solid technical analysis. Swing trading minimizes overnight risks while breakout trading aims to capitalize on surges.
Useful Tools and Platforms
Equip yourself with these essential penny stock trading tools:
Screeners like Google Finance and Finviz to filter stocks by fundamentals and technicals. Charting platforms like TradingView for technical analysis and chart patterns. Scanners like Trade Ideas and Benzinga Pro to identify momentum. Brokerages like Charles Schwab, E*TRADE and TD Ameritrade that allow penny stock trading. Paper trading simulators and stock trackers to practice strategies risk-free.
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Mitigating Penny Stock Risks
While penny stocks offer exciting upside, they also carry higher risks. Here are some ways to be cautious:
Use stop-losses and limit position sizes to 2-5% of your account to manage extreme volatility. Don’t risk more than you can afford to lose. Stick to higher volume penny stocks over 500k and always check the bid-ask spread before buying to avoid illiquidity.
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Research thoroughly and avoid stocks with dubious management practices or too-good-to-be-true stories. Be wary of penny stock scams like pumps and dumps. Don’t fall for misleading posts or fake PR.
Compare to Options Trading
Penny stocks offer leverage, like options but are focused on shares rather than contracts. Options enable higher leverage and expiration dates add another risk factor. Penny stocks act more like owning a small company versus betting on short-term directionality. Evaluate your goals and risk appetite when choosing between the two.
Ready to Explore Penny Stocks?
Now you’re armed with tips for researching and evaluating penny stocks wisely as a beginner. Before jumping into real trades, paper trade to test strategies. Start small with position size and set stop losses. Tame your trading psychology and stick to your plan. With the right foundation, penny stocks can be an exciting market to explore.
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