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Earlier this year we posted our favorite 3 penny stocks! Similar to then, we've also been receiving an extraordinary amount of questions about which "cheap" stocks and penny stocks to invest in. As we warned last time, while we do note the potential of these types of investments, we cannot stress enough the amount of risk associated with them. Unlike other publications you may see that preach the potential of these types of stocks without disclosing the risks, we think it is important to be completely truthful and note the risks you are taking. Our true goal here is to educate and help you make thoughtful investment decisions! Please skip the below section if you read this last time or are already aware of the inherent risks with these types of stocks!
So what are "penny stocks"? Penny stocks, also referred to as micro-cap stocks, nano-cap stocks, small cap stocks, or OTC stocks, are shares of small public companies that often trade for less than five dollars per share. In the past, penny stocks were considered any stocks that traded for less than one dollar per share. But since, the U.S. Securities and Exchange Commission (SEC) has modified the definition to include all shares trading below five dollars!
Penny stocks are usually associated with small companies and trade infrequently meaning they have a lack of liquidity or ready buyers in the marketplace. As a result, investors may find it difficult to sell their stock since there may not be any buyers at that time! Because of the low liquidity, investors might have difficulty finding a price that accurately reflects the market. Also, due to their lack of liquidity (low amount of trades vs. companies like Apple that have millions of trades per day), wide bid-ask spreads (want people want to buy vs. sell them for) or price quotes, and small company sizes, penny stocks are generally considered highly speculative. In other words, investors could lose a sizable amount or all of their investment when dabbling in this part of the sector.
So outside of the above why else are they so risky? Penny stocks are so risky because they are often the stocks of very young growing companies with limited cash and resources. Sometimes associated with fraud, penny stock companies have little visibility and often don't pan out.
Does this make sense? If so, read on. If not, please message us.
Now that you have been made aware of the risks, here are the stocks we like in this part of the market.
1) Organigram Holdings Inc. (OGI): This is a stock we recommended earlier this year when it was around $1 per share. Fast forward to today and the share price has hit as high as $6 and is currently around $2.7 per share. While there has been volatility (which is to be expected) we still believe in OGI over the long term. OGI is a leading Canadian licensed producer (LP) of premium quality cannabis and extract-based products. Founded in 2013, Organigram first began as a medical cannabis provider. Today, the Company is focused on producing high-quality, indoor-grown cannabis for patients and adult recreational consumers in Canada, as well as developing international business partnerships to extend the Company’s global footprint. Organigram is focused on translating operational excellence into strong financial results and return on investment for shareholders. We like this company as a play into the US and beyond as more and more states are opening their doors to legalizing cannabis.
2) Ashford Hospitality Trust, Inc. (AHT): Ashford Hospitality is a REIT (real estate investment trust) specifically focused on upscale, full-service hotels. The biggest sign of positive news came earlier this year in the form of a $200M financing from Oaktree Capital Management. Oaktree is a leading global alternative investment management firm with expertise in credit strategies run by Howard Marks. For those of you not familiar with Oaktree, they are a giant in the credit lending space. When they and Howard make investments, we watch and listen. With AHT due to announce earnings tomorrow, we are anticipating a hopeful pickup in their earnings portfolio due to a global re-opening with COVID. Another boom or bust play to watch out for!
3) Cerebain Biotech Corp (CBBT): is dedicated to pursuing the development and commercialization of novel treatment approaches in the fight against dementias, with a particular focus on Alzheimer's Disease. After seeing the stock spike earlier this year and drop significantly, as of late, we are seeing the stock starting to consolidate and make a small push upwards. With new drugs in their pipeline, we believe any strong/good news will positively impact their share price significantly. This pick is a pure boom/bust play.
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