What Are Penny Stocks? 2 Top Trading Tips for 2021

Trading Penny Stocks in 2021 Can Be Easy If You Take These Steps 

In 2021, finding penny stocks to buy can be challenging if you don't have the right tools at your disposal. The main two things that every investor needs are a trading education, and access to information about penny stocks.

With these, every investor should understand the factors that go into a penny stocks price movement. When investing in penny stocks, there are two distinct strategies that traders use. These are broken down into one; a trader’s risk profile and two; the timeline that they plan to invest. 

On one hand, we have those who short-term or swing trade. This means buying and selling penny stocks in a short period (one day to one week). Swing trading is usually the most common strategy as the rampant price swings with penny stocks mean that quick gains (and losses) can be realized. It's worth noting that because penny stocks are so volatile, large intraday price movements can be feared by those with lower risk tolerance. 

Second, we have long-term traders. These are traders that believe in the long-term future of a company and the idea that it may move out of penny stock territory. This is a good strategy for those who are less risk-inclined, and investors that think a company has a lot to offer in the coming months or years.

One strategy is not better than the other, however, it all depends on the individual. With this in mind, let's take a look at what penny stocks are and what investors need to know right now.

What to Know About Penny Stocks Right Now  

1. What Are Penny Stocks? 
2. Which Penny Stock Trends Are Investors Seeing Right Now?
3. 2 Penny Stocks to Watch  

What Are Penny Stocks?

By definition, a penny stock is any security trading under $5. This is the most simple explanation, however, it goes far beyond just the pricing. To understand penny stocks, we have to consider the exchanges that they are traded on. The most popular place to find penny stocks is on the OTC market.

The OTC or over-the-counter exchange is where the majority of cheap stocks reside. This is because the requirements to list are much less intensive than with the NYSE or NASDAQ. Additionally, many stocks under $5 do not meet the capital threshold to list on large U.S. exchanges. 

Now, there's nothing wrong with the OTC market, however, certain brokerages do not allow access to it. In 2021, many traders choose to buy penny stocks on Robinhood or WeBull. This is due to the high access and ease of use. However, Robinhood does not allow traders to buy OTC stocks and neither does WeBull. So for this, traders have to go to another brokerage that does allow it. 

But, remember that penny stocks are technically any security trading under $5. And on Robinhood, there are still hundreds to choose from. One thing to consider is that with penny stocks, volatility is usually high, and liquidity can below. Investors should always make sure that the volume is large enough to be able to enter and exit trades. If not, it can lead to swift and unexpected price movements. 

Which Penny Stock Trends Are Investors Seeing Right Now?

Finding trending penny stocks can be easy if investors know where to look. But beyond just companies that are trending, investors can use industry and market-wide trends to create a list of penny stocks. Right now two things are affecting all stocks, let alone just those under $5. 

First and foremost is the pandemic. While it initially began as a negative factor, many companies have been able to traverse the pandemic, producing better results than before it started. These companies are referred to as ‘reopening penny stocks'. Classic examples of this include entertainment stocks, tech stocks, work-from-home/educate-from-home stocks, and more. These industries have all separately benefitted from the pandemic in one way or another. 

Next, we can consider the current political environment and the emphasis on certain industries as a result. Because the Biden administration is bent on green energy, many renewable energy companies, and EV stocks, have climbed correspondingly. This is a trend that has only just begun in the past year or so, but it doesn't look like it is going anywhere anytime soon. 

In line with this, a new category of the stock market has arisen known as ESG stocks. ESG stands for environmental, social, and governance. These are companies that are in line with the green future. This could be anything from energy businesses to those focused on reducing environmental impacts and more. Now, this is not a be-all-end-all list, however, it should help to get you on the right track to creating a penny stock watchlist. 

2 Penny Stocks to Watch Right Now 

1. SG Blocks Inc. SGBX 
2. Ashford Hospitality Trust Inc. AHT 

SG Blocks Inc. SGBX 

We've covered SG Blocks several times in the past few months and there are some good reasons for that. For one, shares of SGBX have risen steeply over that period. In addition, the company recently reported its fourth-quarter and full-year 2020 earnings. Before we get into it, let's discuss what SG Blocks does. 

SGBX is a designer and innovator of container-based structures and products. It utilized code-engineered cargo containers for use in everything from construction, green architecture, and faster project execution. Every container it utilizes is created from GreenSteel, which is a more eco-friendly product than what traditional containers are made of. 

In its Q4 and full-year 2020 results, CEO Paul Galvin stated that "we finished 2020 with unprecedented momentum, achieving record revenue for the fourth quarter that exceeded the prior eight quarters combined, with increased activity across all of our verticals, despite the challenges that we have all collectively faced this year.”

“These results directly reflect the incredible effort of our team over the past several quarters to build a pipeline of strategic opportunities, aligning with best-in-class partners, and positioning our balance sheet to support the accelerating pace of activity." 

CEO of SG Blocks Inc., Paul Gavin

Because of its solid results and forward-thinking agenda, SG Blocks continues to be an attractive penny stock to watch. Whether it earns a place on your watchlist, however, is up to you. 

Ashford Hospitality Trust Inc. AHT 

Ashford Hospitality Trust is another penny stock you may be familiar with if you read pennystocks.com often. If not, AHT is a real estate investment trust or REIT, working in the luxury and high-end hotel market. It recently began offering the Ashford App, which is an application geared at connecting investors in the REIT industry.

Over the past year, the price of real estate has skyrocketed. This is indicated by the Dow Jones Equity All REIT Total Return Index, which has continued to break 52-week highs in that period. This is one of the main contributing factors to the success of AHT in the past few months. 

Additionally, the company reported its Q1 financial results earlier in the week. In the report, it posted a $0.30 loss per share versus the Zacks Consensus Estimate of $0.75. While this is better than the estimate and its year-ago loss of $1.20, it is still not the most encouraging. However, vastly beating estimates is always a great sign for investors to consider. 

Additionally, the company posted revenue of around $115 million for the quarter, which beat analyst estimates by over 1%. This, however, is less than its 2020 Q1 revenue of over $280 million. The effects of the pandemic have been rough on all businesses and not just AHT. But, with its positive earnings report, AHT could be worth watching in the future. 

Penny Stocks; Worth it or Not?

At the end of the day, buying and selling penny stocks can be the right choice for the right investor. But, before putting any money into any stock, let alone those under $5, it's important to understand what type of investor you are. 

Whether you aim to short or long-term trade, research will always be the cornerstone of making a profit with penny stocks. And, with the pandemic lessening in severity, investors have high hopes for the future. Considering all of this, are penny stocks worth it or not?