Penny Stocks–Road to Boom or Bust? (2024)

I’ll bet investing in penny stocks is not one of your New Year’s Resolutions. Should you reconsider?

When I published “Hot Air Promotions” for my grandfather, I had the mistaken idea that penny stocks went out with the thirties when it is believed he wrote the book. To say the man was bitter would be an understatement; after all, he didn’t call it Hot Air Promotions for nothing! Stanley McShane, however, was investing wholly in penny mining stocks. His rancor rose to new heights tucked within his poems. For him, unquestionably, it was bust–not boom.

The new year, 2017, is particularly notable, of course, as it will see the first term of a newly elected president, albeit one without heavy previous political experience. The man has already created waves in Wall Street pushing the Dow to within 1% of 20,000 for several days. Some say it may exceed 22,000.

So this is your caveat: I know next to nothing about investing in stocks, much less penny stocks, which lack of credibility probably preceded them prior to the third decade of the last century. Penny stocks get a bad rap primarily because of their price. That instant opinion is formed based on the share price and sets it apart immediately. Certainly questionable promotions continue and “pump and dumps” are still common, though I don’t believe that phrase was used back when P. J. Rose was investing.

For the uninitiated, penny stocks, while they may actually be sold for pennies, are generally considered stocks that are trading for less than $5.00. Wikipedia also defines a penny stock as a “security that trades below $5/share”, but also notes that it is not listed on a national exchange and does not meet other specific (or financial) criteria. (Well, now I’m confused, as I see many that do.)

According to Alan Farley of Investopedia.com, the strongest gains historically range between November and the following March. He calls the first part of this phenomenon the “Santa Rally” (don’t you love it?), while the “January Effect” generates the second part. Apparently, this is a well-documented occurrence.

The aforementioned president-elect has already generated increased interest in penny stocks. Not me, but he (we’re still talking Alan Farley) cites several as example:

• NAK – Northern Dynasty Minerals at Dec. 1st price of $1.19
• NBY – Novabay Pharmaceuticals Inc at Dec 1st price of $3.90
• AREX – Approach Resources Inc at Dec 1st price of $3.50

Where they are now?

As with any investing, research is the absolute numero uno. Any stock that is trading on “pink sheets,” or over-the-counter bulletin board (OTCBB), is considered a penny stock. These stocks may lack history and if they aren’t traded on a stock exchange do not have to file with the SEC. They lack minimum standards and are less liquid. (READ: Extremely RISKY!) Look for stocks that trade on NASDAQ.

But wait–then what is the attraction? What if you find that one in 80,000 that releases a major new product–or medication, tech component? There are some penny stocks that hit it big–and I mean BIG, explosive $$$! These are a few:

• Pier 1 Imports
• Monster Beverage
• Sprint (yes, THAT Sprint–doesn’t that just get your blood pumping??)

Now, jumping on the marijuana bandwagon, with more than 25 states legalizing medical marijuana, and most recently California legalizing recreational marijuana, the industry is set to explode. According to Jack Delaney, Associate Editor of Money Morning, “investing in the marijuana industry is being called the gold rush of the 21st century.” Any smokin’ marijuana penny stocks? Yes, actually, there are several that keep popping up in research:

1. W. Pharmaceuticals
2. Cara Therapeutics Inc.
3. CANN – General Cannabis

In real estate, the mantra is “the three “L’s,” location, location, location. Perhaps the mantra in penny stock trading is the three “R’s,” research, research, research. Take heed in Stanley McShane’s plaintive poem reflecting on Hot Air Promotions:

Hot Air Promoters

I gazed upon a wolf one day

Who snarled around the Pit.

He showed his fangs and lolling tongue

For a Sucker, he had bit.

He yelled aloud, “I bought that stock

From you for just one cent-

When that Irish Dividend had been paid

That your friend Pat had lent.

And now I want to sell that stock

To you for fifty-five.

That’s how I live, my good kind friend!

That’s what keeps me alive.

But shimminey Christmas! Why do you howl?

Oh, what’s the matter with you?”

I WAS the sucker that rose and said,

“You’ve bled me through and through!”

Stanley McShane

©2017 Virginia Williams