The idea of being able to snatch up a handful of stocks for pennies on the dollar seems like an attractive venture. After all, you don’t need a lot of capital to get into the market when stocks are priced as low as a fraction of a penny.
However, while “Penny stocks” may be priced very low per share, they’re not all created equal. There are a lot of risks involved in trading penny stocks, though there is certainly an opportunity for major gains if you’re willing to do the homework on these companies.
If penny stocks have piqued your interest, read on to find out what to look for when buying these stocks, as well as a few potential stocks to put on your watchlist.
What Are Penny Stocks?
A penny stock is a stock that trades for less than $5, though it’s often as cheap as a fraction of a penny. Penny stocks are not traded on any major stock exchange because they typically do not meet the criteria for these platforms. Instead, they’re generally traded on the over-the-counter (OTC) market, which means they’re traded directly between counterparties.
Penny stocks are often very risky securities because they’re highly speculative and often include some of the smallest and newest companies with little to no information available on their fundamentals. These stocks are also vulnerable to scams whereby fraudulent companies promote cheap stocks to get the price to soar. After unsuspecting investors buy into the stock, insiders sell it at the elevated price, only for the stock price to eventually plummet.
That said, it’s possible to find a hidden penny stock gem that will legitimately skyrocket in price over time, giving investors a significant profit. But you’ll need to have a high tolerance for risk to trade penny stocks given their inherent risks.
Best Penny Stocks To Invest In Canada
With the wide variety of penny stocks available to buy, choosing the right investment can be hard and nerve wrecking. To help you narrow down your search, we’ve rounded up the top penny stocks to invest in Canada:
Athabasca Oil Corp. (TSE: ATH)
Calgary-based Athabasca Oil Corp. (TSE:ATH) is a Canadian energy company founded in 2006 that focuses on developing thermal and light oil assets. Since its inception, the firm has accumulated a vast amount of land with an abundance of resources.
Executives behind Athabasca Oil are cautious with their capital spending, which means investors‘ capital is also being spent prudently. Given the soaring cost of oil lately, investors with shares in ATH have benefitted from profits. Prices for the TSE: ATH stock currently sits at $3.38CAD as of this writing.
Thinking of investing in gold? Find out how to invest in gold.
Fobi AI (CVE: FOBI)
In 2021, Loop Insights rebranded itself to become known as Fobi AI, a leading data intelligence firm that uses artificial intelligence (AI) to help provide clients with valuable insights from real-time data.
The transition to the new name stemmed from the Vancouver-based company’s focus on more lucrative deals with larger corporate-level clients. The goal is to transition from a small startup company to a more established firm poised for continued growth.
FOBI AI has a market cap of $62.32millionCAD and is currently priced at $0.40 CAD. The total enterprise value is currently standing at $58.263 Million CAD
Kodiak Copper Corp. (CVE: KDK)
Kodiak Copper Corp. (CVE: KDK) focuses on copper porphyry projects in Canada and the US. The company does not have strong fundamentals just yet and the stock is very speculative at the moment, especially considering the industry it’s in. That said, when timed right, investing in this penny stock can bring about significant gains for investors, as many have realized over the recent past.
The KDK stock price tends to fluctuate based on news of exploration. Copper is being dubbed as the “new oil” by some industry experts, which may cause the price to rise. Subsequently, this has led some investors to believe there may be some solid foundation in this particular sector, as long as the respective company has sound fundamentals.
If you plan to invest in KDK, be sure to do your due diligence to time your entry and exit just right. As of this writing, the stock is trading at $1.40CAD.
Check out these mining stocks.
HIVE Blockchain Technologies Ltd. (CVE: HIVE)
Everyone seems to be talking about crypto lately, and with the wide variety of financial-tech companies, it’s never been easier to invest in digital currencies. That’s what makes companies like the HIVE Blockchain Technologies Ltd. (CVE: HIVE) so interesting. Investing in crypto can seem like new and foreign terrain. However, the cheap stock price has certainly attracted the attention of many investors.
Vancouver-based HIVE is the first publicly-traded cryptocurrency mining firm in Canada and operates across North America, Sweden, and Iceland. The company claims to use renewable energy sources in its mining, which may be something that environmentally-conscious investors might find attractive.
At a current stock price of $3.94 CAD, HIVE has the potential to spike if it continues to distribute its reserves into additional revenue streams.
American Lithium Corp (CVE: LI)
Don’t let the word “American” in the name of this company fool you: American Lithium Corp (CVE: LI) is a Canadian company based out of Vancouver and is part of an incredibly lucrative industry.
The company is involved in developing lithium projects in North and South America, in addition to presently undeveloped uranium projects. Lithium is a crucial component for rechargeable batteries used in electric cars and smartphones, so it’s easy to see why the element is so valuable with the popularity of such products like TESLA and Apple. Companies involved in its production could be poised for significant growth in the near future as tech companies continue to develop at its rapid pace.
Despite LI being classified as a penny stock, the company has actually been around since 1974, which makes this particular penny stock somewhat unique. The stock price for LI is currently at $2.62 CAD with a total market value of $22.507B CAD
Benefits Of Penny Stocks
There are several reasons to consider investing in penny stocks in Canada, including the following:
Low Price
Perhaps the main feature of penny stocks that attract investors is their very low prices. You can buy a stock for just a few pennies and purchase high volume without breaking the bank. In fact, it’s the low prices that attract newbie traders and those with little capital.
Potential For Quick Growth
Even an increase of a few cents can translate into significant gains if you purchased a high enough volume. If you can get into a penny stock just before big news breaks about the company or the industry it’s in, you could be positioned to see serious price growth. Just keep in mind that the stock must show the market plenty of future potential for it to exponentially increase in value.
Potential For The Next Big Thing
Imagine buying stocks in Amazon when the company first went public. Back in 1997, the Amazon stock price was a mere $1.73 USD. Today it’s over $2,400.
With penny stocks, you could be investing in a company that eventually becomes a mainstay in its industry. While these situations are not very common, they’re still possible. And if you find that diamond in the rough, you could have a very valuable stock in your portfolio.
Things To Consider When Investing In Penny Stocks
Before you get excited about the prospect of being able to buy a stock for pennies, there are a few things you should think about first to ensure you’re making a sound investment decision:
Do Your Research
Some penny stocks come from sub-par companies and fraudulent firms that are in the business of scamming unsuspecting investors. For this reason, it’s important to do some homework on the company you’re considering investing in. Check out its fundamentals, the industry it belongs in, any pertinent news, and even its balance sheet if you can get access to it.
Watch Out For Trading Halts
A trading halt refers to the temporary suspension of trading for a specific stock on an exchange. That means investors will not be able to trade that particular stock. This could happen for regulatory purposes or if major news is expected. It could also happen if there’s a need to correct a situation whereby there are too many buy or sell orders for a specific stock.
Set Realistic Expectations
As mentioned, a penny stock must show great potential for future growth in order for investors to see significant gains in value. Further, it’s possible that you could pay a much higher price for a penny stock than you first expected, which could put you at risk of losing your capital investment.
Choose Businesses That Have Some History
To protect your investment capital, consider investing in companies that have at least a few years of history. You don’t want to get involved with companies that could potentially be involved in “pump and dump” scams, whereby their stock is artificially hyped up to inflate the price, only for the stock price to drop after many investors have invested.
For a safer investment, choose companies that have been around for a few years and that have some information for you to research before making your investment decision.
Penny Stock FAQs
Is it safe to invest in penny stocks?
Where can you buy penny stocks?
Is a $1 stock better than a $100 stock?
Final Thoughts
Not all penny stocks are worth investing in, no matter how cheap they may be. That said, there is still potential for significant returns, despite the inherent risk. To protect your capital and overall finances, ensure you always do your due diligence before investing in penny stocks.
