Following the initial impact of the novel coronavirus — which sent millions of workers home — trading activity in the market blossomed. In fact, the Wall Street Journal documented this phenomenon well, describing how seemingly everyone had tapped into their inner Gordon Gekko. Given this backdrop, it shouldn’t be a surprise what happened next: investors dived into penny stocks.
As humans, we’re all tempted with the idea of getting rich quickly. That’s where the psychological attraction of ultra-low-priced penny stocks comes in. It’s a powerful marketing draw. Combine that with the coordinated trading action you can get on social media and you have what can act as an unprecedented catalyst for speculation. Thanks to platforms like Reddit, it has never been easier to disseminate trading ideas to a wide audience. Of course, this concept is a double-edged sword; outright terrible ideas can spread like wildfire. However, Reddit users can also be onto something with these kinds of low-float picks.
What do I mean by low float? The term “float” refers to the number of common shares issued to the public that are available for trading. A low float represents an equity unit with less supply than the average publicly traded company. So, when a catalyst appears in the headlines, it can potentially drive up shares, That makes penny stocks that fit into the category quite desirable.
Granted, this market segment is awfully risky because you’re dealing with speculative ventures. It’s not out of the question for pink-sheet companies or other heavily downgraded firms to lie about their operations. But, if you’re going to bet on penny stocks, sometimes you might as well go for the low-float variety. Just know this: you should never rely on Reddit or any social media platform to make investment decisions. And that goes fivefold for penny stocks. You absolutely must perform your due diligence because speculative investments — low float or not — have a higher probability of ruining your life than they do helping you get rich.
- Reshape Lifesciences (NASDAQ:RSLS)
- Digital Brands (NASDAQ:DBGI)
- Bridgeline Digital (NASDAQ:BLIN)
- Grove (NASDAQ:GRVI)
- Recon Technology (NASDAQ:RCON)
- Lifeloc Technologies (OTCMKTS:LCTC)
- Multi Solutions II (OTCMKTS:MUSS)
Reddit Penny Stocks: Reshape Lifesciences (RSLS)
Before we get into low-float penny stocks, it also helps to establish a firm definition for the group. For that, I’m going to go with Sofi Technologies’ (NASADAQ:SOFI) definition. The company says that investors “typically consider a float of 10-20 million shares as a low float.” Using this as a framework, Reshape Lifesciences certainly fits into the pack.
As of this writing, Reshape has a float of 7.24 million shares, with 0.86% held by insiders and 7.7% held by institutional investors. For those interested, RSLS stock also features a short ratio of 0.08. That implies it wouldn’t be a natural candidate for a short squeeze.
Nevertheless, because Reshape isn’t diluted to the hilt like so many other penny stocks, there’s a possibility that its equity unit could enjoy significant upside with the right catalyst. Billing itself as the United States’ “premier weight-loss solutions company” focused on obesity and metabolic disease, Reshape has speculative potential.
According to the Centers for Disease Control and Prevention (CDC), obesity prevalence in the U.S. was 42.4% between 2017 and 2018. So, RSLS certainly has an addressable market, albeit in a cynical sense.
Digital Brands (DBGI)
Rather than attempting to put words into the mouth of this pick, I’ll let Digital Brands speak for itself. According to its website, the company is a “curated collection of luxury lifestyle, digital-first brands” that groups together “like-minded direct-to-consumer names under one portfolio to share operational, infrastructure, and data resources as means to drive down redundant fixed costs.”
Admittedly, this marketing verbiage is a bit confusing for me. But at a glance, Digital Brands seems to be a trendy apparel retailer with a suite of different lines. What’s much clearer, though, is DBGI stock’s low float, which currently measures at 6.91 million shares. What’s more, the data from Yahoo! Finance points out that nearly 43% of the company’s equity is held by insiders.
Considering this, the leadership team must really believe in the potential of the company — something you often want to see in your prospective investments (and particularly if we’re talking about penny stocks). Of course, that doesn’t guarantee that DBGI stock will swing higher with its high fashion, but it should give you a small measure of confidence.
Reddit Penny Stocks: Bridgeline Digital (BLIN)
What I would term as a force-multiplier in the new-generation marketing ecosystem, Bridgeline Digital “powers digital experiences for some of the world’s largest brands.” Looking further into this pick of the penny stocks, I found that this name’s website claims that its “innovative solutions enable companies to capture greater traffic, increase order value and drive conversion.”
In today’s world, if you don’t have an online presence, your business is as good as dead. So, in theory Bridgeline could be a high-potential investment. Plus, for those who are looking to gamble on penny stocks, this firm’s float of 7.59 million shares is quite attractive.
However, with a short percentage of float of only 4.72% and a short ratio (otherwise known as days to cover) of 0.27, BLIN stock will likely not attract attention as a short-squeeze candidate. Therefore, you’ll probably have to wait for some headline-driving catalyst to make profits here.
In early July of this year, BLIN briefly rocketed to double-digit prices before quickly tumbling when the euphoria died off. So, it’s possible that there could be another go, based on the relevance of the underlying business. Still, I would be very careful.
Priced at a little over $5 at the time of this writing, Grove might be a bit off from what most people consider as one of the penny stocks. Nevertheless, this company tends to attract some attention among Reddit forums, likely because of its cannabis-themed business.
To be more precise, Grove specializes in hemp and cannabidiol (CBD) products, which is essentially cannabis with minimal to no tetrahydrocannabinol (THC), the compound that gives pot its signature high. Thanks to the groundbreaking Agriculture Improvement Act of 2018 — colloquially known as the farm bill — the federal government no longer considers hemp and CBD to be controlled substances.
Naturally, this has opened doors for CBD retail distribution throughout the States. Grove could be a key beneficiary of that. For one, a majority of Americans support legalization; the stigma of marijuana just isn’t what it used to be. Plus, it’s much easier to evangelize CBD products because they are non-psychoactive.
If that wasn’t compelling enough, GRVI stock features a float of a little over 5 million shares. So, while penny stocks (or penny-ish stocks, in this case) are always risky, there might be some opportunity here based on the popularity of CBD.
Reddit Penny Stocks: Recon Technology (RCON)
Although a brand name like Recon Technology implies something related to the defense sector, it’s actually an energy firm. Specifically, Recon is “China’s first non-state owned oil and gas field service company to be listed” on the Nasdaq exchange.
Further, Recon supplies blue-chip energy names with “advanced automated technologies, efficient gathering and transportation equipment and reservoir stimulation products for increasing petroleum extraction levels, reducing impurities and lowering production costs.” If you believe that we’re in store for a global recovery from the pandemic, RCON stock might just be able to enjoy fundamental catalysts from demand upswings.
Currently priced at just over $3, shares aren’t exactly what you call a comfortable buy. However, the equity unit features a float of just under 6 million shares. Further, insiders hold about 10% of RCON stock, which could possibly mean that there’s a healthy amount of confidence among executives.
I should note that, a few months ago, this name was among the low-float penny stocks that soared into double-digit territory. But, over the last several weeks, it’s been mired in a consolidation pattern. Therefore, you’ll probably need to wait for a catalyst before shares pick up again — if they ever do.
Lifeloc Technologies (LCTC)
One of the biggest challenges with penny stocks is that you often can’t have much confidence in the underlying business. Perhaps the company is on the up and up. Still, sometimes you can never know. However, with Lifeloc Technologies, you do have some reassurances that the organization you’re investing in helps make for safer roads.
Specializing in breath-alcohol testing devices, Lifeloc has powerful applications for law enforcement and more. Ever since the Covid-19 pandemic, the U.S. has seen a spike in fatal vehicular crashes. This sad trend has also continued into 2021, with some counties reporting a “disturbing increase” in deaths from driving under the influence.
So, anything that law enforcement can do to keep irresponsibility off the road is potentially lifesaving. Lifeloc is able to help address the problems resulting from increased drinking during the pandemic. All told, the company seems to be doing its part in directing troubled offenders to the assistance that they need.
As one of the low-float penny stocks, LCTC stock currently has a float of just 257,000 shares.
Reddit Penny Stocks: Multi Solutions II (MUSS)
For the last speculative idea on this list, I went with a company that is definitely one of the penny stocks. Priced at a little over 5 cents, Multi Solutions II is about as risky as you can get. Personally, I wouldn’t bother with the company because there’s not much information to work on. However, who knows what could happen if you place a bet.
According to a description from the Wall Street Journal, Multi Solutions II “engages in the production, marketing, and maintenance of a line of software products.” The company provides “tools for the development of client-server, front-ending, and internet based applications.”
Make what you will of that vague statement. However, what’s certainly clear here is this is a day trade through and through. According to Yahoo! Finance, MUSS stock has a 52-week range between 5.4 cents at the low and 51 cents at the top.
You’d have to be extremely brave (and maybe foolish) to gamble with this pick of the penny stocks. Still, here’s a parting thought — MUSS has a float of only 427,000 shares.
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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.