While the OTC market is the best known haven for penny stock investors, there are other places to find low-priced equity shares.
The Nasdaq often calls to mind behemoths like Apple, Amazon, and Tesla. At the other end of the spectrum are a collection of intriguing, high growth potential micro and nano caps.
Since the Nasdaq Composite is a market cap weighted index, mega cap companies largely dictate its performance. But that doesn’t mean big winners can’t be found digging deep into the benchmark’s rolodex.
In fact, year after year, many of the Nasdaq’s biggest percentage gainers are low-priced penny stocks. This makes it a great place for penny stock investors to find home runs.
Among the Nasdaq Composite’s 2020 top 10 gainers were VXRT (+1,531%), CRDF (+1,351%), and AWH (+728%). All three started the year as little-known penny stocks.
The magnitude and breadth of returns seen in 2020 were likely more an anomaly than a norm. That’s because the starting line was pushed back for most stocks at the onset of the pandemic. Emotion-driven buying by bored-at-home, short-term traders certainly contributed to many of the outsized returns.
In 2019 and 2020, the Nasdaq Composite advanced 35% and 44%, respectively. It is up another 6% this year, despite dipping into the red in early March 2021.
Twice the index has peeked above the 14,000 level this year but both times headed lower. Technical analysts would tell us this double top formation may be an ominous sign of a market struggling to regain its momentum.
Yet there’s still a lot to be optimistic about. The U.S. economy expanded 6.4% in 1Q2021, marking an acceleration from the fourth quarter’s 4.3% growth. China’s economy grew 18.3% in 1Q2021 and other major economies have rebounded similarly well.
Why does this matter? Ultimately, this economic growth should be reflected in corporate earnings reports. These reports and expectations around future reports are the primary driver of stock market performance.
We’ve already started to see this in the 1Q2021 earnings reports. According to Factset, S&P 500 companies are on pace to report the highest percentage of positive earnings surprises since Factset began tracking the stat in 2008. Better yet, analysts’ forecasts for the S&P’s 2Q2021 earnings were significantly boosted last month.
Getting back to penny stocks, the healthier economic environment is beneficial to the smallest of companies as well. Even though many micro caps are still unprofitable, higher demand for their goods and services stands to improve their financial results—and stock performance.
Let’s take a look a four penny stocks that investors have been lining up to buy in hopes of better times ahead.
PENNY STOCKS TO WATCH #1 BLRX
Back on April 23rd, BLRX’s daily chart showed signs of a continuation wedge when the stock was trading at $2.88. In the world of technical analysis, this classic formation meant that the bulls had regained control of BLRX from the bears. It also suggested that the uptrend would resume and BLRX would head to around $3.70 over the next 10 weeks. The payoff for chart readers came much earlier.
On May 4th, BLRX announced positive results from its Phase 3 GENESIS trial of Motixafortide in combination with granulocyte colony stimulating factor (G-CSF). The company’s lead product candidate is being evaluated as a stem-cell mobilizer in bone marrow transplants involving patients with multiple myeloma. Seventy percent of patients achieved optimal stem cell yields compared to 14% for the control group.
The results far surpassed the primary and secondary endpoints of the study. This bodes very well for Motixafortide’s potential role in transplant settings for multiple myeloma patients.
CEO of BLRX Philip Serlin stated, “These strikingly positive data significantly exceeded our expectations, and are truly transformational for our company…These results support our goal of becoming the standard of care for autologous bone-marrow transplantation, providing a strong clinical and pharmaco-economic advantage for its use, on top of G-CSF, in all transplant procedures.”
BLRX is working towards gaining regulatory approval and plans to submit a new drug application (NDA) to the FDA in 1H2022.
At the peak, BLRX had well surpassed the $5.oo level. This is roughly where the company enacted a 1-for-15 reverse stock split in July 2019. It’s significant for two reasons. First, the long climb back from the $1.06 March 2020 low shows the resilience of the stock. Second, the massive 244 million share trading volume on May 4th was greater than all of December 2020 through April 2021 combined. The record volume means that investors are interested in BLRX like never before—and that more volatility and potential gains are ahead.
Sell-side analysts certainly think BLRX has a lot of room to run. In the wake of the big May 4th news, Oppenheimer reiterated its buy rating and $10.00 price target. Maxim Group also called BLRX a buy and agreed with the $10.00 target. H.C. Wainwright also covers the stock. The analyst there has a $19.00 target on BLRX but hasn’t offered an update since February 24th.
The May 4th surge topped out at $6.34. BLRX has since pulled back to around $4.00 due to a bout of profit-taking but the volume has paled in comparison. The run appears to be just getting started on this one.
PENNY STOCKS TO WATCH #2 COCP
Staying in the biotech space, COCP has acted similar to BLRX over the last few days.
It’s been a busy week for COCP. On May 3rd, it provided an update on its COVID-19 antiviral development programs that target multiple coronaviruses. It announced a plan to launch a second COVID-19 antiviral drug candidate which would be administered orally. The market applauded the progress in bidding COCP up in 68-times its 90-day average trading volume on May 4th.
Unfortunately, once Cinco de Mayo came, the party slowed down. That morning COCP announced a $40 million secondary share offering. It said it plans to use the proceeds to expand both its COVID-19 and Infleuenza treatment development programs as well as for working capital and the standard ‘general corporate purposes’.
Shareholders never like it when their stake in the company is weakened by an add-on offering. It really didn’t sit well with COCP investors because the stock was offered at $1.54 per share, a 28% discount to the May 4th closing price.
Back in December 2020, COCP identified its lead coronavirus candidate, CDI-45205, which it obtained through an exclusive license agreement with Kansas State University Research Foundation. This candidate showed good promise in studies involving mice and rats. It was more recently shown to work well in conjunction with Gilead’s FDA-approved COVID-19 treatment remdesivir.
After it dipped as low as $0.17 in December 2017, COCP did a 1-for-30 reverse split. As often is the case, this didn’t go well with investors nor did the quarterly reports that followed.
Momentum may now be in COCP’s favor. After the stock more than tripled to a peak of $3.46, it came crashing back to Earth. Now trading around $1.60, investors may want to prepare for the next phase of this roller coaster ride.
The two firms that cover COCP both call it a buy with price targets of $4.50 and $5.00. Interestingly, one of those firms is H.C. Wainwright, the same company that purchased the 26 million secondary share offering as part of an underwriting agreement.
Next month COCP will hold its 2021 Annual Shareholders Meeting virtually. It’ll be interesting to see if this event helps the stock zoom higher.
PENNY STOCKS TO WATCH #3 LEDS
Five years ago, LEDS had a 1-for-10 reverse split that repriced the stock to $3.00. Fast forward to today and LEDS is trading around $5.00. Not a bad return, but not great either.
LEDS’ blue, white, and green chips are designed for street lights and various commercial and residential lighting purposes. Its products are also used in medical settings, counterfeit detection, horticulture, architecture, and entertainment.
Last month, the Taiwan-based maker of ultra-bright LED semiconductor chips reported fiscal 2021 second quarter results that disappointed investors. Although revenue increased 68% to $1.2 million, it reported a net loss of $0.06 per share. This was a narrower loss than the $0.17 per share loss in prior year period but the market was hoping for better. The company’s cash position declined 22% year-over-year to $2.2 million. The Q2 report prompted a selloff from the $5.00 level back to around $3.00.
LEDS has started looking brighter this week. On May 4th, LEDS soared 58% in over 26-times the stock’s 90-day average trading volume.
While there were no press releases, investors were buzzing about LEDS as a potential beneficiary of the global semiconductor shortage. We have yet to see this issue play into LEDS favor, but that doesn’t mean it can’t.
Putting the chip shortage speculation aside, the big rally could’ve been caused by nothing other than social media hype. LEDS has a reputation as a ‘pump and dump’ stock that can have huge spurts promptly followed by selloffs. This could certainly be the case here, but LEDS is still worth monitoring.
Some weak hands have since parted ways with LEDS. By late afternoon trading on May 5th it was down to $5.28.
Still, a good chunk of the gains have been held which could mean the LEDS bulls have a good grip on the stock.
This is the type of low float stock that we favor for its big gain potential. Investors that can ride momentum plays like this could bank some lights out returns.
PENNY STOCKS TO WATCH #4 REED
Let’s wash down today’s penny stock watch list with beverage maker REED.
REED sells craft ginger beer and ginger ale in bottles and cans. It also offers wellness ginger shots and craft ginger candy. You don’t have to like ginger to like the recent momentum in REED.
In February 2021, REED announced a new distribution partnership with Canada’s leading healthy beverage distributor Unique Foods. Naturally, the market liked that this will enhance REED’s sales opportunities in Canada and sent the stock on an early February rally.
Then, on March 30th, REED announced 4Q2020 results. Net sales rose 49% to $10.7 million thanks to several new product launches. It reported a narrower net loss per share of $0.05 versus a net loss of $0.09 per share a year prior.
This week REED dropped the big news. It announced an expanded distribution agreement with CVS Pharmacy. This is a major deal because six new products will now be sold in more than 1,000 CVS stores.
Norman Snyder, REED CEO commented, “Over the past year, Reed’s has been rapidly expanding our distribution across all channels, and we are excited to increase availability of Reed’s and Virgil’s beverages at CVS Pharmacy locations across the country. Growing from just two of our Ginger Beers at CVS Pharmacy, to now retailing multiple varieties from Reed’s and Virgil’s, shows our company’s unstoppable momentum to meet the demand from consumers and retailers alike for more all-natural alternatives.”
May 4th was a popular day for penny stock surges and REED’s was among the strongest. It went from a buck to as high as $1.68 on the CVS headline.
However, the next day, REED shareholders experienced the buzzkill we so often see in the penny stock world. Good news followed by a secondary share offering.
REED announced a $7.9 million direct offering at a price of $1.18 per share. On May 5th, REED closed $0.12 below this price taking away most of the fizz from the CVS rally.
A sole sell-side firm covers REED that being Maxim Group. It has a buy rating and a $1.50 price target.
Also on the plus side, REED has been a favorite of hedge fund manager Chuck Royce of Royce & Associates. In 4Q2020, he more than doubled his position in REED to $2.4 million. Although this is a drop in the bucket for a hedge fund of its size, its still good to see big institutional money with an interest in a penny stock like REED.
As REED’s CEO noted, there seems to be some serious momentum in the business.
As we keep saying, there are always opportunities in the markets and it’s our job to find hot penny stocks for our subscribers. Huge gains can be made in such a short amount of time.
If you like any of these 4 penny stocks, our best advice is to be patient and throw bids in below the market. Buying dips and selling rips as swing trades remains the best strategy.
It’s also important to look for penny stocks that have yet to run. There are plenty of opportunities out there and we screen hundreds of penny stocks each week looking for the best alerts for our subscribers.
Remember, all it takes is one or two to become a winner and you’ve crushed the market indices for the year.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.