I am all for a good opportunity, but I don’t know why some investors insist on penny stocks. Names like Ocugen (NASDAQ:OCGN) aren’t trading for about 50 cents apiece by accident. While it feels cool to buy a thousand shares of OCGN stock vs. a few shares of Amazon (NASDAQ:AMZN), save yourself the heartache.
I will concede this: The one great thing about the stock market is there is a style for everyone. You can be a growth investor, futures trader, deep-value investor, a day trader, options player, or a dividend aficionado. In that list, you can even include penny-stock trader.
But there’s a big difference in having an edge flipping sub-$5 stocks vs. combing over this group as an investor looking for sound fundamentals and a mistakenly low stock price.
Some of the names will rally big, putting together epic squeezes that can double or triple the stock prices in just a few days. Maybe OCGN stock will be one of them again. However, I won’t be around to find out. I’ll be sticking to the stocks that are actually working.
Historic Bull Run in Stocks
The S&P 500 has rallied 52.9% from the March low to its highs on August 6. That’s one of the best rallies we’ve seen in that amount of time (95 trading sessions, 136 days). The Nasdaq has been even more impressive, rallying 67.7% in the same time frame and hitting new all-time highs in the process.
Until July 20, when OCGN stock jumped about 20%, shares were down 21% from the March low. A bout of buying in late July sent shares from 20 cents apiece to above 90 cents a share a few days later. We’ve now already seen a 50% correction in the stock price, with shares changing hands around 46 cents per share.
Did Ocugen already have “the move?”
It’s certainly possible. That’s the thing with these low-priced penny stocks. You never know when they will suddenly go on a squeeze. In this case, shares rallied about four-fold in just a few days. If you missed that action, you missed all the gains.
Instead of buying a piece of the S&P 500 or Nasdaq — or even better, a common sense mega-holding like Apple (NASDAQ:AAPL) or Amazon — investors in OCGN stock took on a high-risk investment and for months saw negative returns.
Admittedly one could argue that it could have been bought for a quarter and sold for 75 cents, but hindsight is 20/20 in all of these names. If we’re playing that game then I’m buying LEAP call options on Apple and Amazon in March.
The point is, the risk/reward of owning something like Ocugen is simply not worth it vs. having even basic equity exposure. The statistics support having long-term exposure to this asset class.
Bottom Line on OCGN Stock
I will just say this on Ocugen: There’s a reason it trades for sub-$1 after hitting resistance near $180 in 2018. Healthy companies do not undergo 1-for-60 reverse stock splits like this one did in September 2019.
If you’re not convinced by now, maybe you will consider OCGN stock a poor investment when looking at the fundamentals. The company has no revenue, runs an annual deficit, and does not generate positive free cash flow.
With $3.2 million in cash vs. current liabilities of $3.3 million, Ocugen likely has enough cash on hand to cover its short-term obligations. Long-term debt of $1.6 million is not a back-breaker either.
But just because a company does not have crippling debt doesn’t mean it’s a buy. Guys, there’s no revenue here! Literally, zero. How can we possibly evaluate a stock on a fundamental basis with that being reality?
Maybe it pans out for Ocugen and I wish the team (and its investors) the best of luck. But any success they find will be without me as a shareholder.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.