What Are Penny Stocks?

Penny stocks refer to shares of small public companies that trade at relatively low prices, often under $5 per share. In Australia, they are typically stocks listed on the ASX that trade at less than $1 per share. These stocks usually belong to smaller companies with a lower market capitalisation, meaning their total market value is relatively modest compared to larger companies.

Penny stocks are often considered speculative investments due to their high volatility, low liquidity, and limited information available about the companies. They are favoured by investors who are willing to take on higher risks for the potential of substantial returns.

Advantages and Disadvantages of Penny Stocks

Before diving into the world of penny stocks, let’s look at both the pros and cons that come with this type of investment.

Advantages

Low Entry Cost

One of the most significant advantages of penny stocks is their low price, making them accessible to a broader range of investors. This low cost allows you to purchase a larger quantity of shares with a relatively small investment. The team at Under The Radar Report illustrated it in the sense that if you found a stable penny-stock company offering $0.10 a share and put in $2,000 to buy 20,000 shares, seeing the share price go up to $0.15 and its resulting yield may be equivalent to buying as much as 20 shares in a bank like CommBank. 

High Growth Potential

If you invest in a penny stock that experiences rapid growth, that may yield significant returns. The small size of these companies means that even minor developments can lead to substantial price increases.

Diversification

Penny stocks can provide an opportunity to diversify your investment portfolio with exposure to emerging sectors or industries that larger companies may not be involved in.

Disadvantages

High Risk

Penny stocks are considered high-risk investments due to their volatility and the speculative nature of the companies they represent. Price swings can be dramatic, resulting in substantial losses in a short period.

Low Liquidity

Many penny stocks have low trading volumes, which can make it challenging to buy or sell your shares quickly. This lack of liquidity can also lead to significant price changes with even small trades.

Limited Information

Smaller companies that issue penny stocks may not be subject to the same level of scrutiny and reporting requirements as larger corporations, making it difficult to obtain reliable information about their financial health and business prospects. There is also the danger of pump-and-dump penny stock scams, which were illustrated in the Hollywood movie The Wolf of Wall Street, about noted businessman Jordan Belfort. In fact, back in July 2024, ASIC filed charges against four suspected operators of a pump-and-dump scheme conducted using the messaging app Telegram.

Notable Penny Stocks in Australia

To help you get started, the BARTERCARD team perused the ASX for notable penny stocks listed and their value at time of discovery. Each one was picked from different industries. Extensive due diligence is still needed before you attempt to invest in them.

Technology Sector: Alcidion Group Limited (ASX: ALC)

Alcidion Group is a healthcare technology company that provides clinical decision support and data analytics software to hospitals and healthcare organisations. Their flagship product, Miya Precision, aims to improve clinical workflows and patient outcomes by using predictive analytics. Observers stated that the company had $12m in cash reserves and no liabilities as of EOFY24, but have gone through Q1 FY25 spending $7.2m. It is optimistic of breakeven by 2026 and up to $1m in profit by 2027, with current successes including digitisation work of health records in the UK.

• Price Range: Typically under $0.50
• Current Stock level: $0.057
• Risk Level: Medium to high due to competition and technology adoption rates in the healthcare sector.

Mining Sector: Ionic Rare Earths Limited (ASX: IXR)

Ionic Rare Earths is a mining exploration company focused on developing its rare earth project in Uganda. Rare earth elements are critical in the production of electronic devices, electric vehicles, and renewable energy technologies. As global demand for these materials grows, companies like Ionic Rare Earths could benefit significantly.

However, a look at the situation on the ground may require caution. Shares have been dropping since January 2024’s high of $0.026, despite a good set of work contracts. These include $2.46m in UK government grants to research new demagnetising solutions for magnets at end-of-life through a new facility in Belfast, Northern Ireland, and Uganda’s first large-scale mining licence.

• Price Range: Generally trades below $0.10
• Current Stock Level: $0.0090
• Risk Level: High due to the volatile nature of commodity markets and the early-stage development of their projects.

Renewable Energy Sector: ClearVue Technologies Limited (ASX: CPV)

ClearVue Technologies, from West Perth, WA, specialises in manufacturing solar cells integrated into building designs, such as solar windows and skylights. The object is to help a commercial property access renewable energy resources without having the telltale appearance of solar cells. The company stock has been swinging wildly in recent months despite landing new supply contracts in Qatar and India, plus landing $7.5m in fresh capital for a US expansion.

• Price Range: Around $0.30 to $0.60
• Current Stock Level: $0.0395
• Risk Level: Low, due to national emphasis on net-zero tech adoption.

Biotechnology Sector: Prescient Therapeutics Limited (ASX: PTX)

Prescient Therapeutics specialises in the development of personalised cancer treatments. Their research focuses on innovative therapies that target cancer cells more precisely, reducing damage to healthy cells. With advancements in biotechnology and personalised medicine, Prescient Therapeutics has significant growth potential. At present, Prescient is focusing on preparing Phase II testing of its PTX-100 cell-targeting solution with the aim of securing FDA approval.

• Price Range: Generally trades between $0.10 and $0.20
• Current Price Level: $0.044
• Risk Level: High due to the uncertainty in clinical trials and drug development success.

Tips for Investing in Penny Stocks

If you have some disposable income that can be put in the penny-stock area, the following are some ways to get your feet in the door.

Do Your Research

Always conduct thorough research on the company, its management, and its financial situation before investing in penny stocks. Look for companies with solid business models and potential for growth. The ASX will have comprehensive material on each company’s current status.

Limit Your Exposure

Given the high risk associated with penny stocks, it’s wise to invest only a small portion of your portfolio in these assets. This way, you can mitigate potential losses while still enjoying the upside if they perform well.

Monitor the Market

Keep an eye on market trends and industry developments that could affect the value of your penny stocks. Changes in technology, regulations, or economic conditions can have a significant impact on these investments.

Set a Stop-Loss Order

Consider setting stop-loss orders to minimise your losses if the stock’s price drops to a certain level. This can help protect your investment from sudden market downturns.

Conclusion

Penny stocks can be a double-edged sword in the investment world. While they offer an opportunity for substantial gains at a low cost, they come with increased risks, including volatility, lack of liquidity, and limited company information. For investors looking to take on these challenges, conducting proper research and investing responsibly is crucial. Whether you are interested in technology, mining, renewable energy, or biotechnology, there are penny stocks on the ASX that cater to a range of investment preferences.

DISCLAIMER: This article is for informational purposes only and does not replace investment advice. The share prices listed for each item are accurate as of the time of writing and are not indicative for future movements. BARTERCARD does not have business interests in companies offering penny stocks, and has no stock brokerage capabilities or stakeholder responsibilities in the ASX. Please consult your financial advisor and ASX-licensed stockbroker.