Contrary to its name, a “penny stock” are not actually priced at a penny or under. In the past penny stocks were defined as stocks that trade for less that $1.
Most of them do not trade on main exchanges. However, the SEC changed that definition to also include stocks trading on main exchanges that trade under $5.
Today we will focus on stocks that trade under $1.50 and that’s the definition we’ll use in our discussion here.
Characteristics of a Good Penny Stock
Let’s take a quick look at some of the characteristics of a good penny stock first, before discussing our picks, and understanding why we like them.
PRICE: We’ve already indicated one of the characteristics that we believe classify a penny stock – price. For our discussion today, we’ll look at a few that are priced under $1.50 as a penny stock worth our attention.
RISK: While risk is inherent in almost any type of equity, penny stocks are much more susceptible to it. Generally speaking, companies behind penny stocks have little or no revenue, and they are often in early-stage development cycles. As a result, they run a higher risk of failure compared to companies with a proven track record.
VOLATILITY: Low-cost stocks, like penny stocks, trade on rumor and news. As a result, you can experience wild price movements on any given day.
VOLUME: Finally, penny stocks often trade on low volume. They are usually (though not always) small cap (or even micro-cap) stocks, and don’t attract the keen interest of many investors – such as intuitional money managers. As a result, trading volume is often low.
Also Read: 3 Best Oil and Gas Penny Stocks For 2018
Both of our picks, Real Goods Solar, Inc (RGSE) and Cancer Genetics, Inc (CGIX) check most of the boxes to qualify for penny stock status. And here’s why we like them:
- Real Goods Solar, Inc (RGSE) is into commercial and residential solar engineering, construction and installation (including Solar PC panels). While Cancer Genetics, Inc (CGIX) is an early-stage cancer diagnostics company. Clean power and healthcare are two very trending topics in the U.S. (and globally), and these picks are heavily involved in both sectors
- Both RGSE and CGIX are currently priced under the $1.50 range that we decided to focus on for penny stocks. However, as we see in the chart above, they have 52-week highs that are significantly above current price. (Risk: 50-week lows are significantly below today’s closing price!)
- Both companies are in the news recently. RGSE has signed some great partnership deals (Dow Chemicals), and it could benefit from a trade war with China. CGIX has many shareholder lawsuits, but it also reported recently having received U. S. Food and Drug Administration (FDA) 510(k) clearance for some of its tests. While good news does tend to propel penny stocks higher, bad news turned good (e.g. a lawsuit win by the company) shoots such stocks even higher.
- A look at the 12-day price movement charts (see table above) indicate that both stocks are capable (though NOT assured) of moving up and to the right over short periods of trading.
A deeper look at the price moves of the two stocks would indicate that CGIX is likely on a steeper decline slope than RGSE. However, as discussed earlier, both stocks could see rapid swings (upwards or down!) on a turn of a dime – and that’s what penny stock investing is all about.
For instance, news of a major installation contract (for RGSE), or a buy-out announcement by one of the major pharma companies (for CGIX), could be an upside catalyst to both stocks.
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If you plan on putting money into either of these stocks, remember – these are NOT long-term investments. Instead, you should look at these as trading vehicles, and you should be nimble enough to jump out of the trade when the signs start to turn against you.
The author does not own any of the stocks mentioned in the article