Jan 30, 2021
8 mins read
Not all penny stocks are worth your time but a proper strategy can keep you in winning trades longer.
Coronavirus has been a boon to countless companies that have actually benefited from shutdowns.
Some of the "blue-chips" in 2019 became penny stocks in 2020 and vice versa due to Robinhooders bumping up trading volumes this year.
Are we going to see more stocks under $5 become market leaders like some of these before the end of the year?
Should You Look For Penny Stocks To Buy Or Is Amazon Better?
Penny stocks are inherently volatile, that's a given. However, what we're seeing in the stock market today is that everything is volatile. It doesn't matter if you're looking at the S&P 500 ETF (SPY) or Amazon Inc. (AMZN), prices are fluctuating like crazy. While some opponents of small-cap stocks may emphasize how "dangerous of a game" penny stocks are, there are ways to consistently profit every day. The first way to consistently profit is to treat these stocks under $5 as stocks and not lottery tickets.
Most of the time we see traders lose is when they try to leverage "lunch money" taking a chance on a stock they've done little research on. In the age of Robinhood, penny stocks have become a huge focus. In fact, of the most popular penny stocks on Robinhood 11% are stocks under $5. What does this tell you? Demand is there, now it's about understanding how to trade penny stocks to consistently make money.
Are they built for investing, in the long term? Generally speaking, most penny stocks fluctuate so much that a shorter-term time horizon is a better bet than anything. This isn't to say that all penny stocks aren't worth it. But it is saying that historically, the first instinct is a short-term day trade or swing trade. Fear of Missing Out - FOMO - can play its own role. Even if you have nerves of steel and stick to your plan 99% of the time, there are always those instances that greed steps in.
Are Penny Stocks Worth It?
The thought that "maybe this goes higher" is a very real thought that I'm sure many of you have gone through. When it comes to consistently making money with penny stocks, sticking to a plan generally results in more profitable trades than losses. There are plenty of ways to educate yourself about proper trading strategies, of course. But I won't get into that in this article. What I will discuss are penny stocks that hit it big in 2020. I'm not talking about ones that went from $1 to $3. This list of former penny stocks is made up of stocks that could have been bought for under $5 this year and are now, well-above that level.
Winning Penny Stocks In 2020 #1: Sorrento Therapeutics Inc.
Sorrento Therapeutics Inc. (SRNE) is actually still one of the popular stocks on Robinhood this month. Compared to where it was trading in March 2020, SRNE stock is trading at levels night and day different this month. In fact, SRNE stock hasn't been considered a penny stock since the end of June. The range has gone from lows of $1.55 to highs of $19.39 so far.
While this company's stock has gone through its share of ups and downs, 2020 has been a pivotal year thanks to COVID-19. The big excitement began earlier this year when the California-based biopharmaceutical company claimed to have discovered an antibody that could shield the human body from the coronavirus. As they say, the rest is history.
Year-to-date, SRNE stock is up nearly 200% and at the 2020 high, shares were up as much as 467%. So was this penny stock worth it so far? By all accounts, I'm sure there aren't many bad things you could say about the performance of this biotech stock. While admirable, the 60% YTD gain in Amazon doesn't compare.
Obviously, a stomach for volatility was and is likely needed when it comes to penny stocks. But those that weathered this volatility were rewarded with multi-triple-digit appreciation this year. What's more, is that this week Sorrento was given a nod by the FDA to proceed with its clinical study of its COVID-19 antibody treatment.
Winning Penny Stocks In 2020 #2: Vaxart Inc.
Another one of the cheap stocks hitting it big this year is Vaxart Inc. (VXRT). Shares have surged from $2.18 earlier this year, to highs of $17.49. While VXRT stock price has pulled back in August, the recent surge that coronavirus vaccine stocks have experienced helped pull VXRT back up. This week, the former penny stock is trading above $8; still up over 2,250% YTD.
Earlier this year, Vaxart was simply focusing on treatments for H1 influenza. The obvious similarities between coronavirus and the flu are now evident. We've also seen how companies in similar situations have attempted to tweak treatments and apply them to COVID-19.
Fast-forward to this month and the company just received clearance from the FDA of its IND application for a Phase 1 trial of its oral COVID-19 treatment candidate. With recruitment set to begin this month, there's no doubt there could be more attention on this company. To think that it was one of the penny stocks under 50 cents at the start of 2020 seems unreal. But the fact remains, VXRT was a penny stock before COVID-19 hit.
Vaxart is also conducting a SARS-CoV-2 challenge study in hamsters to provide efficacy data and insights into the optimal dose regimen of its vaccine candidate. Results from this study are expected mid-October.
Winning Penny Stocks In 2020 #3: Ebang International Holdings Inc.
Ebang International Holdings Inc. (NASDAQ:EBON) is another penny stock that's now run rampant since August. It was trading around $4.60 just before the company announced a key update.
Ebang reported that it established a wholly-owned subsidiary in Singapore in preparation for establishing a cryptocurrency exchange. At the time, cryptocurrency stocks weren't as mainstream as they were in 2018. However, that doesn't mean traders aren't still excited about this arena.
Fast-forward a few more weeks and EBON stock has now reached highs of $14.95. The move hasn't come without volatility, obviously. However, shares have been steadily climbing since we first began discussing the company. No new developments have come about since then nor have there been any new filings.
Considering the recent focus on cryptocurrency thanks to the latest comments from the Federal Reserve this week, it could have become a catalyst behind this latest surge. Will it continue? That's yet to be seen but it's worth mentioning that in just a little over a month, EBON stock has climbed as much as 225%. During that same period, Amazon, for instance, is actually down about 5%.
Granted we're talking about a thinly traded penny stock versus a massive blue chip stock. But if short-term trading is how you're looking to make money, EBON has been a clear example of how penny stocks have outperformed large caps with a shorter time horizon in mind.
Winning Penny Stocks In 2020 #4: Penn National Gaming
Penn National Gaming (PENN) is another one of the former penny stocks killing it this year. Back in March, when the entire market sold off, betting and casino stocks took a hit. PENN stock wasn't immune to this either.
Shares dipped as low as $3.75, well within the range. However, since then, Penn National has been on an absolute tear. Shares just reached new all-time highs as the rest of the market is selling off this week. During the morning session on Thursday, PENN stock hit $74.73. Since March, the former penny stock has managed to climb nearly 1,900%.
The latest deal with Barstool Sports has upped the ante for the gaming stock. On top of that, major Wall Street analysts are beginning to cover the stock. On September 17, Stifel adjusted its price target on the stock to $85 from $47. The firm also holds a Buy rating on Penn National stock. With the public debut of DraftKings, iGaming stocks are getting a lot more "play" in the stock market today.
Winning Penny Stocks In 2020 #5: Novavax Inc.
You can't talk about penny stocks hitting it big in 2020 without referencing Novavax Inc. (NVAX). For those looking at this and scratching their head, NVAX was a popular penny stock to watch earlier this year and late last year. In mid-January, NVAX stock was trading around $4.40. This was just at the start of the novel coronavirus. As more data emerged, Novavax made a push for a vaccine candidate.
After announcing receipt of up to $388 million in funding from CEPI for COVID-19 vaccine development, NVAX stock gapped up into a whole new price level. At the time the $388 million was the largest amount the Coalition for Epidemic Preparedness Innovations had invested, too. The company also won an award for $1.6 billion to further the advancement of its coronavirus pipeline. These and other key developments fueled NVAX stock's breakout. It would eventually see highs of $189.40 in August; a 4,200% move from January 15th.
Like most coronavirus vaccine stocks, NVAX pulled back over the last few weeks. This month, shares have bounced a bit. While it's worth mentioning this epic run, it's also worth mentioning that this move didn't come overnight and I don't know the likelihood that someone would hold shares that long. Nonetheless, NVAX stock is one of the biggest movers on this list of penny stocks and now competes with some of the leading biotech names in the business.