Penny stocks are shares in small companies that trade for less than $1. These stocks can offer high growth potential but come with considerable risk, as they often lack the financial stability and predictability of larger established companies. They're sometimes referred to as micro-cap stacks.
To help you identify potentially interesting penny stocks, each week we look at the performance of penny stocks and identify the 10 which had the largest growth. We exclude any stocks priced at under $0.10, as even small price movements can look like large percentage gains.
Our list of highlighted stocks aren't necessarily the best penny stocks for you or your personal situation. Investing in penny stocks is typically highly speculative and can be very risky. We do not guarantee the performance or returns of any investment. You should do your own research and consult an industry professional when in doubt.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Penny stocks are smaller, less established businesses which are often impacted by volatility. However, even when the overall market is volatile, it doesn't necessarily make it a bad time to invest, especially for those who are buying for the long term. After all, the share price and business performance don't always align over the short term.
So over the long term owning shares that are cheaper, in businesses that are growing can be beneficial to your long-term wealth.
In Australia, the commodity boom off the back of the GFC helped power many of our penny stocks, especially in the mining and resources sector.
Also it's worth pointing out that not all shares follow the market. In fact many businesses can have differing performance to how the market is going. Again though, this will rely on buying the right business.
Finally some businesses perform stronger in a recessionary period. Service providers, repair services, small luxury items, consumer staples and commodities can be recession resistant.
"I'll trade in things I believe have a lot of hype… I'll have a very firm stop loss and a price I take a profit at. And once I take the profit, I take it and move on. I'm done. I'm not re-entering… Or if it hits my stop loss, I sell and take the loss. I've taken lots of losses and I've taken lots of profits."
On the opposite side of the scale to penny stocks are blue chip stocks. In comparison to penny stocks, blue chip stocks are large listed companies that have been around for a long time and have an extensive, stable financial track record.
Some of Australia's biggest and most well-known companies are considered blue chip stocks, such as the Big Four banks, Telstra, BHP.
While penny stocks in most cases pay no dividends, blue chips stocks almost always do.
The downside of buying blue chip stocks is they traditionally have a slower growth rate compared to smaller stocks.
If investors are chasing larger capital growth, they traditionally do not look at blue chip stocks.
Penny stocks are highly speculative investments. The odds of you losing all your money are greater than gaining multi-bagger returns.
As such, these investments usually are tailored towards the following:
Australian penny stocks can be a good way for investors to ease into the market.
Like with everything else in life, you get what you pay for. So investors who choose to put their money in mature blue chip stocks can do so, but it will cost them more for the privilege.
On the other side is penny stocks, which, as the name suggests are significantly cheaper per share.
However, there is a downside – these companies are far riskier compared to the more established players.
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