What are Penny Stocks?
Penny stocks are usually shares of small public companies that have low share prices, typically below $5. Some investors are attracted to penny stocks for high returns from small investments. However, they also come with substantial risks that require research and due diligence.
How to Find Good Penny Stocks
When looking for penny stocks to buy, the first step is finding companies that fit the definition. There are a few factors to look for. The share price should be under $5, often even under $1. The market capitalization, which is calculated by multiplying total shares by the share price, should be under $50 million to $300 million for most penny stocks. Many of the companies will also trade over-the-counter. That doesn’t mean you won’t find penny stocks with higher market caps or ones traded on major exchanges like the NYSE and Nasdaq.
Once you have found penny stocks with these criteria, further research is required to analyze the potential opportunities and risks. Look at the financial statements, especially the income statement and balance sheet, to assess the company’s financial health and performance over recent quarters. Research the company’s business model, products and services, competitive advantages and industry outlook.
It is also important to understand the management team’s background and track record. Check if there are any regulatory issues impacting the stock. Review analyst reports or any independent analysis of the company. The goal is to gain a comprehensive view of the fundamentals and viability of the business.
Conducting Technical Analysis on Penny Stocks
Technical analysis can also help identify trading opportunities by spotting trends and patterns in the stock’s price and trading volume. Indicators like moving averages, support and resistance levels and Relative Strength Index are commonly used. But always confirm signals with a review of fundamentals.
Red Flags to Watch Out For
There are several potential warning signs or red flags to be aware of when researching penny stocks. Be wary of companies with frequent and opaque reverse stock splits, which can be used to artificially inflate the stock price. Avoid stocks with overwhelming promotional campaigns not supported by fundamentals.
Shell or blank check companies with no actual business operations are very risky. Review financial statements for consistency, debt levels and cash burn rates. Always be skeptical of penny stocks with sudden spikes in trading volume or prices. These pumps are often artificial and unreliable.
Creating a Watchlist and Entry/Exit Signals
Once you have thoroughly researched a number of penny stocks to watch, create a watchlist of companies that appear fundamentally sound and have potential opportunities. Actively monitor your watchlist stocks for entry and exit signals based on price action, trading volumes, news catalysts and your original analysis.
Managing Risks When Trading Penny Stocks
Only invest capital you can afford to lose in low priced stocks given the high risks involved. Consider starting with small position sizes as you evaluate performance. Set stop losses to contain potential losses on more speculative penny stocks. Target cheap stocks with increasing liquidity and fundamentals.
The Reward Potential of Penny Stocks
Trading penny stocks does offer the advantage of high percentage returns from small share price increases. For example, a $0.10 stock increasing to $0.20 per share is a 100% return. Of course, penny stocks can also see steep declines. Managing risks is critical.
Research thoroughly and be able to manage risk efficiently. This can help increase the reward potential while limiting risks. But recognize most penny stocks end up failing or getting delisted. Avoid falling in love with a penny stock story without hard fundamental analysis.
Penny Stocks To Watch
Hub Cyber Security (NASDAQ: HUBC)
Hub Security Ltd is an Israel-based enterprise dedicated to creating confidential computing cybersecurity solutions. It was established in 2017 by veterans of the Israeli Defense Forces’ elite intelligence units and aims to protect sensitive commercial and government information through advanced encrypted computing solutions. The company operates globally, offering a variety of cybersecurity services and innovative computing appliances to over 30 countries.
In a recent PR, Hub Security announced several initiatives underpinning its commitment to excellence and market repositioning. These initiatives include the launch of a new product line to enhance Zero-Trust security, an upgrade to its flagship product – the Hub Secure File Vault, the introduction of Hub Guard for better cyber risk management, and financial progress marked by active work on H1 financial reports. Additionally, the company is in advanced discussions for new client partnerships. It has also initiated a recovery plan to reestablish its market positioning as a leader in the Confidential Compute arena.
With more speculation on virtual threats, cybersecurity stocks are gaining momentum. HUBC stock has managed to climb from under 20 cents a few weeks ago to nearly $0.80 in the stock market today.
FuboTV ( NYSE: FUBO)
Sports entertainment stocks are gaining ground as the latest professional seasons continue. FuboTV is an online pay-TV service offering traditional channels without a cable subscription. The company’s platform also provides a level of interactivity as a sports-first outlet.
It allows viewers to engage with the content they’re watching through features like FanView, which lists stats and scores in real-time. It also allows streaming four separate channels simultaneously and in 4K HDR resolution.
FUBO stock has maintained strong trading levels over the last few months compared to earlier this year. This week, prices hover around $2.30, with the market shaking off most of the concern from last month’s Disney-Charter news. Meanwhile, short interest has attracted attention from some searching for short-squeeze penny stocks. According to Fintel data, the short float percentage on FUBO stock is around 18%.
Thanks to the kick-off of earnings season, there will be plenty to pay attention to. Fubo announced it will deliver its results at the beginning of November. So, if FUBO stock is on your watch list, keep November 3 in mind.
Virgin Galactic Holdings (NYSE: SPCE)
Space stocks were once a popular topic, but the trend cooled off significantly with the shift in market sentiment. The latest risk-on environment, however, has brought interest back to companies in the niche. Virgin Galactic most notably has taken an appeal from investors as the company continues launching civilians into space.
Earlier this month, the company completed its fifth successful human space mission in the last five months. Michael Colglazier, CEO of Virgin Galactic, said: “Our teams in New Mexico and California have delivered on our monthly spaceflight objectives. Three new astronauts journeyed to space today and brought back incredible memories and stories of their experience above the Earth. These early missions with our initial ship, VSS Unity, have informed and confirmed the design and maintenance objectives for our Delta class spaceships, and the production tooling for those ships is on track to commence later in the fourth quarter.”
This week, as the market has risen, so have shares of SPCE stock. While it’s a positive for the company following a long stint of selling, Virgin is still hovering around 52-week lows. The company will report its financial results for the third quarter of 2023 following the close of the U.S. markets on Wednesday, November 8, 2023.