- Penny stocks refer to the common stocks that are traded below £1 and have a market capitalisation of less than £100 million in the UK.
- Penny stocks can help in generating wealth and diversification, but they should not constitute more than 10% of your total investment portfolio.
- They are not long-term investments and shouldn’t be held for over 6 months in general.
Penny stocks are those traded securities which attracts minimal pricing. They are also known as stocks under US $5, microcaps, and small caps, are mostly traded below £1 in the United Kingdom. Penny stock companies have a market cap below £100 million in the UK, and below US $300 million in the US. They are mostly traded through over-the-counter (OTC) transactions. These kinds of transactions have no trading floor like big exchanges, and the quotations are all carried out via electronic means. The penny stocks carrying much greater risks are the ones that are listed on publications like the Pink Sheets.
Apart from OTC transactions, several penny stocks are also traded on big exchanges like LSE and NYSE, which boosts the confidence of investors as these exchanges have certain minimum requirements, like minimum market capitalisation and annual listing fees, which reduce the volatility associated with these stocks. Penny stocks have a high growth potential at a faster speed than traditional stock market instruments, but higher returns come with even higher risks, which include high volatility, less liquidity, and limited information etc. Thus, they should not constitute more than 10% of your total investment portfolio, as these are not stable investments, like mainstream shares and bonds.
Due to very high volatility, very small changes in prices may lead to significant gains and losses in percentages. Thus, holding penny stocks for too long is a very risky deal, and they can be held for 5 minutes or even 5 months, depending on the risk-aversion of the investor. But penny stocks shouldn’t be considered as long-term investments and shouldn’t be held for over 6 months in general.
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Some of the best penny stocks for 2021
Quantum Blockchain Technologies (LON: QBT)
Previously known as Clear Leisure PLC, the company rebranded itself on 7 May 2021 and became Quantum Blockchain Technologies. This was a majority shareholder-approved decision as the focus of the company has shifted from tourism sector to solely strategic areas of technological development. Before rebranding, the company issued 100 million shares at 1p per share and raised £1 million in February 2021. The company aims to invest heavily in research areas of AI, blockchain, quantum computing, and cryptocurrencies.
Previously known as Revolymer PLC, the AIM-listed firm rebranded itself to Itaconix after acquiring Itaconix Corporation in June 2016. The company is into designing and production of bio-based polymers to be used as critical ingredients in several home and industrial applications, for example, hair styling products, and laundry detergents etc. In 2020, it got LSE’s Green Economy Mark after making 96% of its revenues from plant-based products.
PetroNeft Resources PLC
International oil and gas exploration and production company, PetroNeft Resources PLC, is registered in Dublin but it operates in the Russian Tomsk Oblast region. Since 2006, the company is listed on the AIM of LSE and Dublin ESM Markets. In April 2021, the company issued around 126 million new shares and transformed its debt of approximately US $2.9 million into equity.
Comptoir Group (LON: COM)
Listed on the AIM market in June 2016, UK-based company Comptoir Group PLC is known for operating restaurants offering menus based on Lebanese and Middle Eastern cuisine. Comptoir Libanais is the primary restaurant brand of the company. In 2020, the company was impacted heavily by the lockdown, and took several steps to tackle it, like stoppage of all non-essential expenses and reduction in directors’ salaries.
Zephyr Energy (LON: ZPHR)
Oil and natural gas investment platform Zephyr Energy operates in the United States’ Rocky Mountain region. The distressed small-cap oil and gas sector in the US is targeted by the company to generate maximum returns using an approach purely based on technology. The company has a good track record of energy sector acquisitions, turnarounds and exits. Its main goal is to develop a high-impact appraisal project in Paradox Basin, Utah.
Jersey-based MobilityOne Limited offers e-commerce payment solutions and platforms in Malaysia. It provides its services to retailers, financial institutions, transportation service providers etc. With eight banking partners and 2,000 retail points, over 10 million account holders are provided coverage by the company.
ADVFN Plc (LON: AFN)
Global stocks, cryptocurrency and forex information website ADVFN mainly focuses on the private investors and the retail trading market. It is listed on the AIM of the London Stock Exchange. The UK-based company has expanded its operations to the US, Brazil, France, Italy, Canada, Australia, and Germany. The company covers around 80 stock exchanges worldwide to provide its users with share price data.
Premier African Minerals (LON: PREM)
Emerging tungsten producer Premier African Minerals is operating a portfolio of metals as well as agricultural mineral projects across the African region. The company has been able to maintain a good track record in the mining industry. The Zimbabwean government has recently granted the company with a three-year Exclusive Prospecting Order (EPO) for a zone which comprises of the Zulu Lithium and Tantalum claims.
Australia-based company Oilex Limited was founded in the year 2003 and got listed on the AIM of London Stock Exchange in 2006. It focuses on areas surrounding the Indian Ocean Rim to appraise the unconventional petroleum resources which would help in meeting the ever-increasing demand for energy in the region. The board of the company has recently announced in April 2021 that the Gujarat State Petroleum Corporation’s 55% interest in the Cambay Production Sharing Contract (PSC) will be acquired by it.
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Ebiquity (LON: EBQ)
Independent marketing and media consultancy Ebiquity was founded in the year 1997, and was listed on the AIM of the London Stock Exchange in 2000. Its share prices have consistently appreciated since the initial months of 2021. The company cover 75 global media markets, and analyses their $55 billion in media spend, with the aim of reducing the wasteful media expenditure and enhancing the investment efficiency.