Pennystocks are stocks with a low price. These are highly speculative papers that are usually subject to strong price fluctuations. It is not uncommon for shares under 1 euro to be the target of speculators who use these strong price fluctuations to make high profits. But the great opportunities come with extremely high risks. Inexperienced investors can lose a lot of money here very quickly.
These five penny stocks will be the focus of gamblers in early 2021
- Oragenics is a biopharmaceutical company working on novel antibiotics and therapies against infectious diseases. Founded in 1996, the Florida-based company is also developing its own corona vaccine, Terra CoV-2. The share entered thrust last letter from CEO Alan Joslyn to shareholders by reporting on progress in vaccine development.
- Relay Medical, in turn, is a Canadian medical technology company based in Toronto that is working on the development of new technologies in the areas of diagnostics and AI data analysis. Relay Medical had positive news about a COVID-19 therapy candidate in January External using technology from Glow LifeTech, a company in which Relay Medical has a significant interest.
- Upco International also attracted attention at the beginning of January. Within a few days of trading, the share rose 180 percent. The Canadian Companies offers telecommunications and digital services in niche markets worldwide, including services based on blockchain technology. With the Upco Pay app, the company wants to offer messaging and telephony as well as payments.
- Many speculators are interested in cannabis stocks, such as those of the Canadian company Halo Labs, which grows, extracts, produces and sells high quality cannabis flowers, oils and concentrates. In December the company scored one Record sales. After taking over and strengthening the sales force, the company now wants to further increase sales.
- Also popular with speculators: hydrogen stocks such as AFC Energy’s paper. The British company markets an alkaline fuel cell system that supplies clean electricity, for example for electric cars. In January the British issued a strategic cooperation met with an international engineering firm to explore the potential of their technology in shipping and rail transport.
What is attractive about penny stocks?
What are penny stocks?
But that does not mean that trading in penny stocks should be demonized in principle. As always on the stock exchange, it is important to understand what you are investing in. So what are penny stocks exactly? In the euro area, the term refers to companies with a share price of less than 1 euro; in the USA, 5 US dollars is the limit to still count as a penny stock.
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The low value enables investors to invest in large numbers, so that even slight price movements have a strong financial impact. However, the high volatility also means a high risk of loss, which the investor must be able to deal with. Penny stocks are therefore risky and should only constitute a small part of a broadly diversified portfolio.
When does a company become a penny stock?
If a share costs less than 1 euro, there can be several reasons. Risky traders therefore divide penny stocks into four categories:
- Ailing companies that have lost value due to mismanagement or competition. After the collapse of the new market in 2001, around 40 of the 343 shares traded on the Neuer Markt had a value of just under one euro. A current example is the share of the now insolvent financial services provider Wirecard, which crashed within a few months following the fraud allegations. In 2020 it cost 145.50 euros at its peak, now it is listed at 50 cents.
- Micro caps as a preliminary stage to the more established small caps are mostly young or developing companies with a small market capitalization (50 million to 300 million US dollars). Below 50 million, financial experts speak of nano caps. The correspondingly small trading volume causes a high level of volatility and makes companies highly speculative penny stocks.
- Company with an immense number of shares in the share capital. In Asia in particular, it is customary to issue more shares and make the prices so investor-friendly. The share of smartphone manufacturer Xiaomi (NASDAQ: Xiaomi) is around three euros. The Chinese have also issued around 24 billion shares for this purpose.
- Companies facing the turnaround that are currently still in a difficult situation and plagued by poor numbers and restructuring costs. However, if the measures take effect, investors can expect profits. One example is the game developer Zynga (NASDAQ: Zynga), who suffered almost 90 percent of its market value in 2012 after financial difficulties and crashed to an interim low of EUR 1.56 in 2016. After the readjustment of the business model, the share is in a long-term upward trend and is now trading at around nine euros.
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Important rules for penny stock investors
Before investors invest money in penny stocks, a stock valuation based on company figures and trading volume is recommended. In addition, the invested assets should not exceed personal risk tolerance. It is best to use play money that you do not have to rely on. Investors should beware of stock recommendations in Google ads or emails (stock spam). Behind it are not infrequently little Wolfs of Wall Street who stock up on a penny stick when prices are low, advertise the papers in a big way, and then get out again when prices rise. The other investors then lose out.
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