Looking to get rich off of penny stocks? Well, it’s not that easy, and there are many things you should be aware of before investing in penny stocks.
First off, there’s choosing from the thousands of penny stocks available, of which only a handful will be worth your time. About 75% of the common stocks in Canada are currently trading below $5 (the threshold for penny stocks), according to this stock screener. It can be like finding a needle in a haystack.
But there are also many other reasons to both consider and disregard penny stocks as viable investments. I will help you understand both in this article and go over my picks for the best penny stocks in Canada.
What Are Penny Stocks In Canada?
So, you’ve probably heard the term “penny stock” thrown around, but what does it really mean? Contrary to what the name might suggest, penny stocks aren’t just stocks that cost pennies.
A penny stock is generally defined as a publicly traded security issued by a small company (with a market cap of between $50 and $300 million) that trades at less than $5 per share. They are primarily traded on over-the-counter (OTC) markets rather than major exchanges.
Risks of Buying Penny Stocks
So, the first thing to remember about penny stocks is that they’re often highly volatile. This is like the rollercoaster of the investment world, meaning the value of your investments can skyrocket or drop drastically within a very short period of time. Here are some other risks of buying penny stocks:
- Liquidity Risk: These stocks may not be easily bought or sold, potentially trapping your investment.
- Lack of Transparency: Limited financial information can make it difficult to make informed investment decisions.
- Risk of Fraud: Penny stocks are sometimes linked to “pump and dump” schemes, artificially inflating prices only to crash later.
- Price Manipulation: Due to low trading volume, penny stock prices can be influenced significantly by a small group, increasing the risk of heavy losses.
That’s not to say all penny stocks are bad investments or scams. It just means that due diligence is crucial when you’re considering investing in these securities.
Investing in penny stocks isn’t for everyone. It’s typically best suited for individuals who have a high-risk tolerance and can afford to potentially lose the money they invest.
As a general rule of thumb, high-risk investments like penny stocks should only make up a small portion of your overall investment portfolio, to a maximum of 10%. Of course, this percentage can vary based on individual circumstances like your personal financial situation and risk tolerance.
Rewards of Buying Penny Stocks
Let’s dive into the potential rewards of penny stocks. It’s only fair to look at both sides of the coin, right?
Now, the first thing that might spring to mind is the chance for massive returns. Given their low price per share, even a small uptick in a penny stock’s price can result in significant percentage gains.
You’ve probably heard stories of these stocks soaring hundreds or even thousands of percent in a short time. This “rags to riches” potential is what attracts many investors to penny stocks. Here are some other benefits of buying penny stocks:
- Low Cost of Entry: The low per-share price of penny stocks allows for the purchase of a large number of shares with a small investment.
- Discovery of Hidden Gems: Investing in penny stocks provides the thrill of uncovering a successful company early in its growth stage.
- Diversification: Penny stocks can add variety to an investment portfolio, offering a potential hedge against market downturns.
The Best Penny Stocks In Canada
Note that you will find relatively few penny stocks worth considering when it comes to dividends as they rarely have earnings they can give out, so it’s a good idea to focus on growth potential when it comes to most penny stocks.
Here are my top picks, in no particular order:
1. Drone Delivery Canada Corp. (FLT.V)
Drone Delivery Canada Corp. (FLT) is a Canadian technology company that designs, develops, and implements drone-based logistics systems. The company provides logistics solutions, including software systems (FLYTE), hardware, and professional services, that allow cargo delivery from depot to depot.
Between October 16, 2020, and Feb 10, 2021, it saw a big spike in stock price with a 239.39% increase.
Reasons to Buy:
The growth in revenue for FLT.V has been quite impressive. The company increased revenue from $0.335 million in 2021 to $0.826 million in 2022 for a gain of 146.63%.
For 2023 Q1, the revenues increased by 344.75% year-over-year to $1.259 million.
The global drone package delivery market size was USD $988.9 million in 2020 and is projected to grow to USD $31,188.7 million by 2028.
The growth of the global cargo drone market was driven by factors such as the rise of e-commerce and the increase in demand for faster delivery. It was kickstarted by the need for contactless delivery during the COVID-19 pandemic.
The progress in drone delivery has been substantial, and gaining the public’s trust and acceptance of drone delivery is essential.
The benefits of delivery drones are becoming increasingly apparent, as they can provide faster and more efficient delivery services compared to traditional methods. All these factors point to FLT.V being a solid long-term pick.
2. Canlan Ice Sports Corp. (ICE.TO)
- Ticker: ICE.TO
- Sector: Consumer Discretionary
- Industry Niche: Hotels, Restaurants, and Leisure
- Forward Dividend Yield: 2.76%
- Dividend Payout Ratio: 16.98%
- Dividend Yield (12-Month Trailing): 2.93%
- Upcoming Dividend Date: Jan 15, 2024
- Market Cap: $54.68 Million
Canlan Ice Sports Corp. (ICE) specializes in developing, operating, and owning multi-purpose recreation and entertainment facilities – notably, indoor ice rinks that are used for hockey and skating.
Canlan Ice Sports has shown a strong rebound after pandemic-related disruptions. Between early March and late June 2020, the stock recovered from a low point of $2.44 to $4.05, a 65.98% increase.
Reasons to Buy:
Canlan Ice Sports Corp. has remained resilient, despite the significant operational challenges presented by the COVID-19 pandemic.
The company’s Q1 2023 revenues were $24.5 million, reflecting a year-over-year growth rate of 29.18%. It also reduced its debt from $53.7 million in 2022 to $48 million in 2023, signifying a noteworthy 10.6% decrease.
Recreational spending has been on a consistent upward trajectory as economies reopen and people return to their pre-pandemic lifestyles. The indoor entertainment center market is projected to grow at a Compound Annual Growth Rate (CAGR) of 12.89% from 2022 to 2028.
In May 2023, Canlan announced that it was working with Scotiabank to evaluate new real estate alternatives to add to its portfolio, aiming to enhance shareholder value. The company even provides a small dividend, which is rare for a penny stock.
Overall, Canlan’s steadily-growing revenue, decreased debt, robust operational performance, and plans to expand its real estate portfolio indicate that ICE.TO could be an excellent long-term investment.
3. Nubeva Technologies Ltd. (NBVA.V)
Nubeva Technologies Ltd. (NBVA) is a Vancouver-based cybersecurity company that develops cutting-edge decryption technologies. These solutions help capture and decrypt network traffic to enhance visibility, security, and overall performance.
Between November 5th and December 15th, 2022, the stock price skyrocketed 201.5% from $0.65 to $1.96. In early December, Nubeva made headlines for decrypting the notorious Black Basta ransomware for a customer, which could explain the sudden increase.
Reasons to Buy:
Nubeva has reported strong financial performance. It’s shown strong year-over-year revenue growth. The company reported a total revenue of $35,400 in its second fiscal quarter of 2022 and $119,580 in its second fiscal quarter of 2023 – a year-over-year growth of 206.92%.
Following this, Nubeva reported $1.29 million in total revenue for its third fiscal quarter of 2023, which is an outstanding 1,644.49% year-over-year increase. It’s even showing a positive net income in its latest quarter, a feat that is not common for many penny stocks.
In addition, the company steadily reduced its debt from $150,230 in Q1 of 2022 to $34,110 in Q1 of 2023, which is a 77.29% decrease.
The global cybersecurity market is projected to grow by 13.8% between 2023 and 2030 due to ever-increasing cyber threats and breaches. Recently, Hydro-Quebec fell victim to a cyber attack in April 2023, which disabled its website and mobile app. This demonstrates the need for cybersecurity innovators like Nubeva.
Nubeva’s innovative and adaptable ransomware and decryption solutions position it favourably to tap into the developing cybersecurity market. This, combined with strong financial performance and decreasing debt, make NBVA.V a penny stock worth watching.
4. A2Z Smart Technologies (AZ.V)
A2Z Smart Technologies Corp. (AZ) develops cutting-edge technology that ranges from advanced bomb-defusion and counterterrorism solutions to advanced engineering and retail automation solutions.
Between January 1st and January 19th, 2023, the stock increased from $1.69 to $2.71 following its partnership with Lenovo. By June 21st, the stock steadily increased to $3.88, growing by 129.58% during the first two quarters of the year.
Reasons to Buy:
A2Z Smart Technologies Corp. demonstrated significant financial growth. The company’s revenue increased from $648,520 in Q1 of 2021 to $1.74 million in Q1 of 2022 – a year-over-year growth of 180.23%.
A2Z followed with even more impressive growth, reporting $6.22 million in total revenue for Q1 of 2023.
The company’s debt increased significantly in 2022, jumping from $1.31 million in Q1 to $3.56 million in Q4. This was due to the company investing heavily in R&D as it expanded into global markets.
Despite this, A2Z reigned in its debt and decreased it by 10% during Q1 of 2023, reporting just $3.20 million of debt.
As the global market for smart retail solutions is projected to grow by 29.1% between 2023 and 2030 as developers look for ways to incorporate AI and other time-saving technologies into their everyday lives. This presents a significant opportunity for A2Z with its smart retail solutions.
The company focuses primarily on research and development but is currently transitioning into a full-to-market company, which would give A2Z a competitive edge.
The company’s substantial revenue growth and recent partnership with Lenovo indicate that AZ.V has massive potential for growth in the coming years.
5. POET Technologies Inc. (PTK.V)
POET Technologies Inc. (PTK) operates in Canada, the US, Singapore, and China. The company specializes in designing, developing, manufacturing, and selling optoelectronic solutions used in aerospace applications and advanced communications.
The stock leaped by 209.67% between November 2020 and February 2021, increasing from $4.65 to $14.40. While the stock price cooled down in 2021 and late 2022, it increased by 92.30% from a low of $3.90 in December 2022 to a high of $7.50 in January 2023.
Reasons to Buy:
This explosive growth came as POET announced a partnership with German-based ADVA to develop cutting-edge networking chips.
The company reported total revenue of $264,410 in 2021 and $748,390 the following year, a 183.04% increase.
One of the more impressive aspects of Poet is how well the company has managed its debt. During the first quarter of 2021, it reported $2.36 million in debt, gradually decreasing to $431,530 in Q1 of 2022 and $368,300 in Q1 of 2023.
POET aims to fill the increasing demand for high-speed data communication in both military and commercial sectors. The company’s intense research and development seem to be paying off, and POET plans to unveil several innovative new products throughout 2023.
Recently, POET acquired Celestial AI as a core customer and is using POETs technology to improve and expand its AI applications.
As POET continues to increase its earnings, decrease its debt and create innovative communications solutions, PTK.V could be a promising penny stock investment for 2023.
6. 5N Plus Inc. (VNP.TO)
Founded in 2005, Montreal-based 5N Plus Inc. (VNP) recycles and produces chemicals and engineered materials for electronic, pharmaceutical, and eco-friendly industries.
Its stock saw considerable growth in 2021, increasing from $3.19 in January to a peak of $4.72 by March 15th, followed by a cool-down period. Between May 2021 and May 2022, though, 5N Plus stock increased by 177.68% from $1.21 to $3.36.
Reasons to Buy:
From Q1 of 2021 to Q1 of 2022, VNPs total revenue increased by 37.43% from $58.91 million to $80.53 million. This was followed by an even more impressive revenue report of $93.18 million in Q2 of 2022.
In Q1 2023, VNP reported total revenue of $74.72 million, 14.18% lower than the year before. However, a deeper look shows that the company increased its gross profits by 24.03% year-over-year, indicating that it’s becoming more efficient in its operations.
The company also managed to decrease its total debt by $6.19 million between Q3 and Q4 of 2022. Q1 of 2023 saw its debt decrease by another $619,000.
5N Plus is a unique company that recycles old materials and resells them to semiconductor manufacturers, pharmaceutical companies, and other industrial manufacturers. The company stands to benefit considerably from these operations, given the ongoing semiconductor shortage.
As the government continues to set renewable energy goals and pursue eco-friendly objectives, 5N Plus stock could see a continued uptrend.
How to Select Penny Stocks to Invest In
The list I provided above is not by any means a complete list. There are literally thousands of stocks to choose from, so feel free to do your own research. Here are some key steps to consider and how I evaluate companies to buy:
- Do Your Homework: First, you want to look into the company’s financial health. Check out their balance sheet, income statement, and cash flow statement if they’re available. Are they making money? Do they have a lot of debt? This information can give you a good idea of the company’s stability.
- Understand the Business: Try to understand what the company does and how it makes money. Is its business model sustainable? Does it operate in a growing industry?
- Look at Trading Volumes: A stock with low trading volumes can be a red flag as it might be hard to sell when you want to. Higher trading volumes usually mean better liquidity.
- Check out Management: A company’s management team can greatly influence its success. Look into the track records of the CEO and other top executives. Have they been successful in the past?
- Watch Out for Scams: Be cautious of “pump and dump” schemes, where promoters inflate a stock’s price before selling their shares and causing the price to collapse. Be wary of stocks that seem to rise dramatically without any substantial news or updates from the company.
- Patience and Timing: Penny stocks can be volatile and unpredictable. Being patient and waiting for the right moment to buy or sell is often key to success.
- Diversify: Don’t put all your eggs in one basket. Even within penny stocks, try to spread your investments across different industries.
- Stay Informed: Keep an eye on market trends and news. These can greatly impact a penny stock’s price.
And lastly, always remember that while penny stocks have the potential for high returns, they also carry significant risk. So, make sure to do your homework, understand the risks, and never invest more than you can afford to lose.
How to Buy Penny Stocks in Canada
Buying penny stocks in Canada is pretty similar to buying other types of stocks. Here’s a basic step-by-step guide:
- Find a Brokerage: You’ll need to open an account with a brokerage that gives access to the markets where penny stocks are traded. Many Canadian brokerages, such as Questrade and Qtrade offer this service.
- Do Your Research: This is a crucial step. Look into the company’s fundamentals, financial health, the industry it operates in, and any news that could affect the stock price. Always remember that investing in penny stocks can be risky, so it’s important to understand what you’re getting into.
- Deposit Funds: Once your brokerage account is set up, you’ll need to deposit funds into it. This can usually be done by transferring money from your bank account.
- Place an Order: Once you’ve picked a stock and have funds in your account, you can place an order. Be aware that penny stocks can be highly volatile, so consider using limit orders, which allow you to set the maximum price you’re willing to pay.
- Monitor Your Investment: After purchasing, it’s crucial to monitor your investment closely. Due to their volatility, penny stock prices can fluctuate widely in a short time.
Can You Get Rich Off Penny Stocks in Canada?
Getting rich off penny stocks isn’t impossible, but it’s rare and fraught with risks. While there are stories of people striking it rich, many more lose money. Penny stocks are volatile, often tied to smaller, unstable companies, and you could potentially lose your whole investment.
However, with careful research, understanding of risks, and wise investment, penny stocks could be part of a diversified portfolio. Yes, they have high-return potential, but this comes with high risk. If you decide to explore penny stocks, be prepared for the risks and don’t invest more than you can afford to lose.
Are Penny Stocks Good For Beginners?
Penny stocks might look appealing to beginners, right? Low prices, high return potential. But they’re a bit like a wild horse—tough to handle for rookies.
Why? First off, their prices can swing like a pendulum on overdrive, and that can lead to big wins or big losses. Also, getting reliable info on penny stock companies can be like finding a needle in a haystack, making informed decisions tricky.
Oh, and beware of scams like “pump and dump” schemes. Not all that glitters is gold, my friend.
That’s not to say beginners should totally avoid penny stocks but tread carefully. They can be a learning opportunity, but do your homework and consider chatting with a financial advisor.
I suggest that beginners cut their teeth on more stable investments, like blue-chip stocks or index funds. As you get the hang of things, then maybe take a swing at the high-risk game of penny stocks. Remember, a balanced and diverse portfolio is the name of the game in investing.
Investing in penny stocks in Canada, like anywhere else, can be a real rollercoaster. Yes, you can score big but don’t forget the risk that comes along with it.
Do your homework, be patient, stay diversified, and keep a close eye on your investments. And remember, if something looks too good to be true in the penny stock world, it probably is. Keep it cool, smart, and safe!
If you want more suggestions, take a look at a complete list of the best stocks in Canada.