Penny stocks offer investors the chance for massive returns. Getting in at under $5 can mean quick returns of 1,000%, or even more if you hit the jackpot. But these little-known companies are also rife with risk — without the same reporting requirements or financial stability, penny stocks can also quickly go to zero without much warning.
So, how do you find ones that are more of the former than the latter? By putting in the research, and spreading your risk capital (money you can afford to lose) widely, you may be able to turn high risk into big opportunity. Here are some of the best penny stocks for investors with a high risk appetite in 2021:
Frequently Asked Questions
What Are Penny Stocks?
Why are these kinds of stocks so cheap? Sometimes, their low share prices are the results of long-term shareholder dilution. That is to say, the issuing of new stock, which reduces the proportionate share of those previously owning the stock. An example of this is airport Covid-19 testing center operator XpresSpa (NASDAQ:XSPA). Trading for single digit today, the stock traded at split-adjusted prices above $200 per share as recently as 2016.
Stocks can also start at higher prices, but then fall to single-digits due to issues with the underlying business. TrueCar (NASDAQ:TRUE) and Trivago (NASDAQ:TRVG) are examples of this. Both went went public at substantially higher prices than either one trades for today.
How Do You Invest in Penny Stocks?
Ideal penny stock investments are those where the potential for gains vastly exceeds the risk of losses. A good example would be in the biotech space, which have many sub-$5 per share firms. While most could fizzle out, holding just a few winners could boost your portfolio when they leap up in prices.
A recent example is iBio (NYSE:IBIO). In 2020, as investors dived into Covid-19 vaccine stocks, this small biopharma company saw its shares rally to prices many times in a matter of weeks. Penny stocks with timely catalysts can a great place to start finding opportunities.
Aren’t Penny Stocks Risky?
But there are also benefits to the risk. Penny stocks can sometimes produce three or even four-digit gains in a short-period of time. Finding even one or two 10x stocks can add a lot to your portfolio.
In short, for success buying these types of stocks, doing your homework—and investing cautiously, is key.