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The penny stock market is where stories of overnight investment success are made, although the ups and downs of this market are too volatile for most investors. If you want to come out on top here, you must understand the dynamics of competing directly with traders as well as picking good companies.
Biggest Volatile Penny Stock Movers of the Day
Volatility in the penny stock market can provide valuable insight as to how trends are moving. Trends in penny stocks speak directly to the psychology of the traders in the market as well. Take a look at some of the most volatile movers in the market today.
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Overview: Volatile Penny Stocks
Penny stocks have been around as long as the stock market. What separates the penny stock market from the mainstream today is government regulation. After the Crash of 1929 and subsequent Great Depression, the Securities and Exchange Commission (SEC) took it upon itself to define the “penny stock” so it could impose stricter regulations on its trade.
In the Securities Exchange Act of 1934, the SEC legally defined a penny stock as one trading under $5 without the benefit of a listing on a national stock exchange. For the most part, this definition stood until the Great Recession of 2008. The SEC then invoked a major redefinition of the penny stock, stating that securities on major U.S. exchanges could carry the definition if they meet other criteria. There are exclusions for securities of issuers that have net tangible assets greater than $2 million if they have operated at least 3 years or greater than $5 million if they’ve operated less than 3 years. Securities of issuers with average revenue of at least $6 million for the last 3 years are also not considered penny stocks. See SEC Rule 3a51-1 for what qualifies as a penn
Some penny stocks trade on the major exchanges, but many of them trade over the counter. These over the counter penny stocks trade mainly on the Pink Market (owned and operated by OTC Markets Group). A wide range of companies trade on this market, including companies that may be bankrupt.
Investors now have access to tiers of penny stocks. Stock tiers are based on the amount of information that company is willing to share with the public about itself:
- Tier 1: These stocks are usually under $5 per share, but can be priced slightly higher. They are listed on a major exchange.
- Tier 2: These stocks are priced between $0.01 and $1 and may be traded in fractions of a penny. They can be listed on a major exchange if they meet the minimum listing requirements.
- Tier 3: Stocks trading below $0.01 cannot be listed on a major exchange, so they do not have to meet any minimum requirements.
- Tier 4: Known as “hot penny stocks” or trip zero stocks are listings that must be priced with 3 0’s.
Best Online Brokers for Volatile Penny Stocks
Many penny stocks are not available on mainstream online brokers. Because of the added risk associated with the OTC and pink sheets market, some online brokers will not provide access to them. Those that do may charge a significant commission for the privilege of facilitating trade. These commissions should be factored into your calculations before committing yourself to a broker.
Compare brokers closely to see which match your trading style.
3 Volatile Penny Stocks to Watch
There are some well-established companies that have come from penny stock territory, including BJ’s Restaurants (NASDAQ: BJRI), Monster Beverage Corporation (NASDAQ: MNST) and Pier 1 Imports (NYSE: PIR), among others. Here are some of the most promising companies to watch today.
1. Remark Holdings (NASDAQ: MARK)
Remark Holdings came into its own during the coronavirus market of 2020, reaching all-time highs that catapulted it far above its pre-2020 sub $1 price tag. The company deals with artificial intelligence (AI) solutions that have gained mainstream news coverage because of their implications for coronavirus screening. Before this recent burst of positive attention, the company was best known for owning the site Bikini.com. Going from that to an exclusive contract selling COVID-19 thermal scanners to Wynn Resorts (NASDAQ: WYNN) is a big jump, but it’s legit.
MARK recently agreed to sell its AI solutions application to Super Draft Inc., an online sports fantasy betting platform founded by Steve Wang. MARK seeks to take advantage of shifts in sports betting with cutting-edge technology.
2. Sonoma Pharmaceuticals Inc (NASDAQ: SNOA)
The biomedicine market is experiencing a mania because of the coronavirus. Investors are pumping stock after stock looking for the unicorn that will bring a vaccine to market. For the most part, these pumps are followed by huge selloffs that leave the stock in the same position as it was before. One major exception to this trend is Sonoma Pharmaceuticals.
Sonoma didn’t get its pump from a COVID-19 vaccine PR scam. It is in the business of sanitization and recently received approval in Australia for its trademarked Nanocyn® sanitizer product. Most disinfectants are created to fight bacteria, but Nanocyn® apparently has a virucidal effect. This would make it effective in warding off the coronavirus, but it would also have a unique product to sell once the COVID scare is over.
3. Chimerix (NASDAQ: CMRX)
While every biotech stock is spending its newfound R&D money on coronavirus tech, Chimerix gained attention for attacking another serious disease, albeit one with much less fanfare: smallpox. The U.S. Food and Drug Administration (FDA) recently gave Chimerix clearance to submit its application for the approval of a smallpox countermeasure, brincidofovir. The company is working in tandem with the U.S. Department of Health and Human Services, which means big contract work for a successful trial process.
In the past, Chimerix gained notoriety for its cancer treatments and its treatments for other chronic diseases. The goodwill has translated into all-time highs that still have an exponential upside, according to some industry experts. If you are looking into biotech but you don’t want to risk holding the bag on a short-term coronavirus play, it may be in your best interests to invest in a company with proven initiatives that are outside of COVID-19 treatment.
A Certain Type of Investor
You may not have to spend much to buy 1,000 shares of a penny stock company. The thought of telling your friends you picked the next Amazon may be worth more to you than a 97% chance of losing $250. But before you throw away that chump change, keep this in mind: Winners in the penny stock market take your chump change very seriously. They are willing to do the research into the companies and into your psychology to make a living, sometimes a great living, off of the scraps of the market.
It takes an investor with nerves of steel and a sharp eye for opportunity to be successful in penny stocks. Most likely, the overnight success you heard of spent quite a long time studying for that victory.
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