Top Penny Stocks for Q3 2023 (2024)

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• Ardelyx Inc.: Ardelyx produces medications for individuals with gastrointestinal diseases. Its primary product is Ibsrela, an oral medication to help treat irritable bowel syndrome that was launched in March 2022.
• Snowline Gold Corp.: Snowline is a Canadian mining company that explores and develops gold-producing properties in the Yukon.
  
• Qudian Inc.:Qudian is a Chinese company that provides online consumer credit solutions. The company's total revenue declined 89% year-over-year in the first quarter, primarily due to the winding down of its loan book business. Qudian's share price dropped by 14% after reporting its first-quarter results, but it's still up more than 100% in the last year.

Advantages of Investing in Penny Stocks

Potential for High Returns: Most penny stocks have tiny market capitalizations, meaning it takes a small amount of money to move their share price substantially. Therefore, positive news, such as signing on a major customer or forming a new strategic alliance, can lead to sizeable returns before the mainstream investing world discovers the stock. Conversely, negative news can lead to significant losses.

Leverage: Penny stocks attract investors with a small amount of trading capital as their lower share prices allow them to buy thousands of shares. For example, if an investor has $500 to invest, they can purchase 2,000 shares of a penny stock trading at 25 cents. If that stock doubles over a month, the investor makes a quick 100% return on their investment. However, with the same starting capital, the investor could afford only a small number of shares in most stocks, making it almost impossible to achieve those gains over the same period.

Risks of Investing in Penny Stocks

Low Liquidity: Penny stocks often trade on thin volume, meaning it can be difficult for investors to enter and exit their positions. Moreover, these stocks typically have a wide spread between the bid and ask, which increases trading costs. For example, if a penny stock has a bid price of $1.00 and an ask price of $1.50, a trader wanting to buy at market gets caught paying a 50 cent per share premium. Therefore, investors should use limit orders to minimize trading costs when buying and selling penny stocks.

Extreme Valuations: Penny stocks that start moving rapidly higher in price show up on stock screeners and may even get media attention. This often attracts more speculators who push prices up even higher, leading to unsustainable valuations. For instance, during the dotcom bubble in the late 1990s, many penny technology stocks doubled and tripled in price despite not generating any earnings. However, when the market turned bearish a few years later, many Nasdaq-listed penny stocks with unsustainable valuations fell substantially or were delisted.

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As of the date this article was written, the author does not own any of the above stocks.

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