Stocks that trade under one dollar are often referred to as penny stocks. A penny stock by definition is a small cap company that trades under $5 per share. There are several pros and cons to trading stocks under $1 per share.
The Pros Of Trading Stocks Under $1
Typically stocks under $1 receive little to no coverage by Wall Street analysts. That means they are volatile in nature. However, it’s this volatility that creates tremendous opportunity to see extraordinary returns.
On February 3, 2017, UBI Blockchain Internet LTD (OTC: UBIA) was trading at around $0.55 per share.
In less than 8 months, the stock traded as high as $115 per share. If you bought $1k worth of stock back on February 3 and sold the highs in December 15, you would have made over $200K in profits.
It’s these type of returns that draw so many people into stocks that trade for under one dollar.
Why Do Stocks Under $1 Sometimes Fly?
Since these companies are not generally owned by mutual funds and hedge funds, they don’t get media attention and go virtually unnoticed by the general public.
This creates an opportunity for savvy traders who are willing to roll up their sleeves and do some homework.
You can find stocks that trade under $1 on all major stock exchanges, including the NYSE, Nasdaq, and AMEX. As well as, the OTC Markets. In order for a company to list on the NYSE and Nasdaq they must meet certain financial, accounting and compliance metrics. On the other hand, listing on the OTC markets is less rigid, and that is where you’ll find many of the best stocks trading under $1.
The Negative Side To Trading Stocks Under $1
Since most analysts won’t bother with low dollar stocks you’re typically on your own when it comes to research. Groups that cover these types of stocks might be newsletters and bloggers, many of them are not qualified to give out stock recommendations.
In addition, you’ll have to become savvy at reading press releases since this how most information on a company is disseminated. Some companies will issue out press releases to simply “pump” it’s stock up. While others have legitimate news that they want investors to know about.
If you’re new to trading it will take some time before you’re able to decipher from what is “hype” from what is “the real deal”
Three Stocks Under $1 That Could Take Off In 2018
Aemetis, Inc. (NASD: AMTX) – This thinly traded stock operates as an international renewable fuels and bio-chemicals company in North America and India.
The firm owns and operates a 60M gallon per year capacity ethanol and animal feed production facility in California. It also owns and operates a 50M gallon per year capacity renewable chemical and advanced fuel production facility on the East Coast of India. The facility produces distilled biodiesel and refined glycerin for its customers in Europe and Asia.
Westmoreland Coal Company (NASD: WLB)- Institutions own more than 50% of this stock. It operates as an energy company, operating through Coal- U.S., Coal- Canada, Coal- WMLP, and power segments.
The Company’s 12 surface mine complexes offer significant transportation and logistic advantages to its customers. The firm has been able to reduce costs and improve performance, while increasing cash flow.
Gastar Exploration Inc. (NYSE: GST) – An independent energy company, it engages in the exploration, development, and production of oil, condensate, natural gas, and natural gas liquids in the United States.
Some of of its key investment criteria include: high-quality stack resource base, highly prolific well results, large drilling inventory, strong oil weighted proved reserve profile, and a good relationship capital providers. The firm also applies hedging techniques to combat market volatility.
These three companies have several things in common. They include a positive return on equity, positive sales growth over the last five years, and have institutional ownership exceeding 40%.
In addition, they are all related to the commodity complex. As fears of inflation rise, commodity related stocks should flourish. Some of the sharpest minds on Wall Street are bullish commodities in 2018, including billionaire investor, Jeffrey Gundlach.
How To Find The Best Stocks Under $1
Read and follow trends. The fastest moving penny stocks are ones that are “in-play.” If you’re able to spot a trending sector, or a stock that has had an explosive move, look for companies in the same space that have yet to make a move.
For example, UBI Blockchain Internet LTD. benefited from the parabolic rise of bitcoin. Since it’s a lot easier to trade stocks than it is to opening a cryptocurrency account, traders were on the hunt for stocks related to the space.
Now, these trends don’t last very long, so you must strike while the iron is hot.
Visiting the OTC Markets website to see what the largest gainers and losers is good place to start. Try to see if the stocks making the greatest gains are in the same sector, and then look for ones that have not made any moves yet.
Regularly read press releases. A positive press release can be the catalyst a stock needs to move higher.
Be careful about social media. There can be good info on social media websites like Twitter and StockTwits. However, you have to make sure that the info you are receiving is from someone not talking up their position.
Now, if the company trades on the NYSE or Nasdaq, you can use a scanner like one found on finviz.com.
Make sure to visit the company website and vet it for yourself.
Lastly, know what your objective is. If you’re getting into a stock just for a trade, don’t fall in love with it. Try to ride the wave and move on. I hope these quick tips can help you find some of the best stocks under $1 before they make their big move!