In the years leading up to the novel coronavirus pandemic, financial advisors bemoaned that younger people weren’t investing in their future as did prior generations. However, the lockdowns and government stimulus checks helped spark a day trading revolution, which is positive in some regards. Still, when it comes to buying penny stocks popular on Reddit, I don’t think this is exactly what those advisors had in mind.
Now, before we roll into this discussion, I must lay out the groundwork. This is not financial advice. I am not an advisor. Merely, the purpose of this article is to relay information about the phenomenon of penny stocks on various social media platforms. You may want to participate in these highly risky, highly speculative opportunities or you may want to pass. Frankly, you probably should pass given this sector’s extreme volatility.
One of the obvious reasons why penny stocks are so dangerous is because of their unpredictability. Typically, you have two classes of this “investment” sector. First, some companies floundered for whatever reason and their shares are trading at a discount relative to their prior highs. Second, many entities don’t have the resources to list on major exchanges and so have little choice but to have their shares traded in the over-the-counter (OTC) market.
For those that are unfamiliar with OTC penny stocks versus exchange-listed securities, it’s the difference between buying a used car at CarMax (NYSE:KMX) as opposed to buying secondhand private party through Craigslist. With CarMax, the company has a reputation to protect and will offer you myriad services, including extended warranties. On the flipside, if you go through Craigslist, you might get a better deal or you might get a money pit.
Of course, whether you go dealership or private party, you’re not guaranteed to get a satisfactory vehicle. However, you have a greater chance of success with a reputable dealership, because they automatically filter out the truly undesirable cars (though you pay more for this filtering). Penny stocks are no different. Understand the fundamental and structural risks of these wagers and you’ll be better prepared for what may lie ahead.
If you think I sound skeptical or even negative, it’s for a reason. The last thing you want to do with penny stocks is to go in with high optimism. Instead, be sober-minded and skeptical. After your rigorous due diligence, if you find that one of these ideas works for you, then be my guest. I just might not be home, that’s all.
With all that in mind, here are seven Reddit penny stocks to keep an eye on:
- Senseonics (NYSEAMERICAN:SENS)
- Atossa Therapeutics (NASDAQ:ATOS)
- Ever-Glory International (NASDAQ:EVK)
- Cinedigm (NASDAQ:CIDM)
- Liberty Defense Holdings (OTCMKTS:LDDFF)
- Razer (OTCMKTS:RAZFF)
- Petroteq Energy (OTCMKTS:PQEFF)
Reddit Penny Stocks to Watch: Senseonics (SENS)
For the last few months, Senseonics, a medical equipment manufacturer that specializes in continuous glucose monitoring (CGM) devices for diabetes patients, has been responsible for multiple social media posts egging SENS stock higher. For full disclosure, I’m on the skeptical side of the fence, but that’s for a different day. Here, I’m just providing information.
Recently, shares skyrocketed as institutional money has been pouring into SENS. From a report by InvestorPlace contributor Chris MacDonald, institutional buying data shows that “BlackRock, among other investors, have loaded up on SENS stock. For retail investors, this is a big vote of confidence. Accordingly, social media is blowing up today covering these reports.” That’s not all, as MacDonald wrote the following:
“Additionally, investors appear to be pricing in some sort of announcement on the horizon for Senseonics’s Eversense monitor. The company announced its submission to the Food and Drug Administration (FDA) for this continuous glucose-monitoring system in October. Retail investors appear to be factoring in some sort of movement on this front.”
While this gives Senseonics true fundamental weight compared to other random penny stocks, you should be aware that the market has a tendency of buying the rumor and selling the news. Therefore, approach SENS with extreme vigilance.
Atossa Therapeutics (ATOS)
Though one of the popular Reddit penny stocks, Atossa Therapeutics doesn’t have the same level of consensus as other wagers discussed on social media. In fact, I saw posts gleefully discussing profiting off their put options — what!? I thought this was a bulls only club!
In all seriousness, supporters of ATOS stock will point to its institutional ownership. At time of writing, Fintel shows that there are 112 total institutional owners, with 99 holding long positions only. Therefore, the thesis is that the shorts, having profited handsomely already, will cover their positions. That would potentially entail a robust upside pathway for ATOS.
Maybe. Anything is possible with penny stocks, so you never want to discount a certain scenario playing out until it’s a mathematical impossibility. Nevertheless, prospective buyers will want to look at ATOS’ chart, where it printed a bearish head-and-shoulders pattern between late May and late July of this year. Those who are a little bit more cautious about their risk-taking endeavors may want to wait for a better entry point.
Reddit Penny Stocks to Watch: Ever-Glory International (EVK)
Hardly a household name on this side of the hemisphere, Ever-Glory International is steadily gaining popularity in its home market of China. Billed as a “retailer of branded fashion apparel and a leading global apparel supply chain solution provider,” Ever-Glory states on its website that it’s the first Chinese apparel company listed on the exchange formerly known as the American Stock Exchange.
Fundamentally — and completely avoiding its peers of risky penny stocks — Ever-Glory offers an intriguing bullish argument. According to the University of North Carolina at Chapel Hill, the Han make up the largest ethnic group in China at over 92% of the nation. Therefore, because of the strongly homogenous society, it’s easier for companies to market retail products that satisfy the bulk of consumers as opposed to targeting a diverse international audience.
That said, the apparel industry is a tough industry no matter what market you’re in. As well, it’s very important for companies to realize that their consumers are not monolithic thanks to the internet making the world much smaller than it used to be.
However, the biggest risk factor is the unpredictable nature of EVK’s price action. It’s great if you’re ahead of the news cycle, but you better be ready to sell when it’s time.
While the coronavirus pandemic afforded a lucky few sectors extraordinary relevance, the same couldn’t be said for large swathes of the traditional entertainment complex. Unfortunately, Cinedigm suffered badly when the pandemic first breached our borders, going from one of the dark horse speculative plays to swimming with junk penny stocks.
However, the story doesn’t end there. Indeed, CIDM may well be a case of when life gives you lemons, make lemonade. True, investors at first didn’t like Cinedigm’s exposure to the box office business. But quickly, management shifted focus on its other divisions, such as streaming channels, content marketing and distribution.
While I’ve generally been skeptical about CIDM in the face of extraordinary headwinds, let’s give credit where it’s due. In its quarter ended March 31, the company reported revenue of $8.3 million, with streaming revenue up 197% from the year-ago level. More importantly, the investment community appreciates Cinedigm’s comeback effort, with shares gaining a whopping 160% year-to-date.
Moving forward, speculators will want to be cognizant about competing entertainment options as society reopens. Then again, a worsening delta variant threat could make CIDM dramatically relevant due to its streaming business. As always with penny stocks, approach carefully.
Reddit Penny Stocks to Watch: Liberty Defense Holdings (LDDFF)
For the last few penny stocks on this list, I’m going to dive into the extremely exotic stuff. Remember what I said about volatility and unpredictability, especially in the OTC market? That message will come in very handy for these ideas.
First up is Liberty Defense Holdings, which currently trades hands at 51 cents per share. Ordinarily, that would frighten blue-chip investors but to be fair, there might be something here. A concealed weapons and threat detection solutions company, Liberty Defense finds itself enormously relevant, albeit for tragic reasons.
As the Washington Post stated, even with fewer mass shootings, “2020 was the deadliest gun violence year in decades.” Alarmingly, the Post reported in June of this year that so far, 2021 is worse. To say the very least, it’s awfully troubling but also understandable in some respects. With the unprecedented social and economic challenges that the pandemic imposed, people have simply lost their bearings.
Though no simple solution exists, the best action we can take is to protect innocent people. That’s where Liberty Defense comes into the picture with its artificial-intelligence-based threat detection technology. While incredibly speculative, LDDFF may be worth considering based on present criminality trends.
When you’re buying equity securities that are priced below what it would take to place a domestic phone call back in the analog days, you know you’re dealing with a binary situation. Razer is one of those penny stocks that can either make you incredibly rich or incredibly upset that you wasted so much money chasing a fleeting dream.
At the same time, Razer isn’t a completely speculative venture. As a popular lifestyle brand for video gamers, you couldn’t ask for a more relevant underlying business. After all, video games are no longer a niche hobby but have blown up into a multi-billion-dollar industry. Better yet, insiders believe that the sector could exceed a valuation of over $200 billion at the end of 2023.
If that wasn’t enough, Razer is making the best of its opportunities. In 2020, the company generated revenue of $1.2 billion, up 48% from its 2019 revenue. As well, Razer posted net income of $6 million, the first time it did so since 2014.
Plus, I’m not going to leave out strength in the balance sheet; Razer has virtually no debt relative to its massive cash and cash equivalent line item of $622 million per the quarter ended Dec. 31, 2020. For speculative penny stocks, this is certainly one to respect.
Reddit Penny Stocks to Watch: Petroteq Energy (PQEFF)
Although public sentiment has strongly shifted toward investments in clean energy infrastructures, the reality is that fossil fuels will likely be in demand for years if not decades to come because of their energy density. However, Petroteq Energy could change this narrative. Billed as an “oil company focused on the development and implementation of its proprietary oil-extraction technologies,” Petroteq is what I would term a transitional investment among penny stocks.
According to the company’s website, Petroteq is busy developing an efficient technology to produce heavy oil at a rate lower than $20 barrels per day. While that’s impressive, the real kicker is that Petroteq produces oil “without any significant waste, emissions or water use,” thereby giving the oil firm environmental, social, governance (ESG) cred.
When have you heard that about a hydrocarbon specialist?
To be completely blunt, by the time you read this, PQEFF stock could be heading to the moon, at least on a percentage-basis comparison. With Petroteq being a news-and-rumor sensitive play, anything can happen. Thus, you’ll hear people on Reddit continue to support the longer-term bullish thesis.
Should you join in on the fun? Personally, the technology is intriguing, but this is also an organization with a long history — and one that’s not the most encouraging. Yeah, I’m a broken record, but approach cautiously.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.