Did you know that about 79% of the common stocks on TSX are currently trading below $5? (as per this stock screener).
This should give you an idea of how many securities trade below what we consider to be penny stocks and how retail investors might limit themselves to only a fraction of good stocks available.
But there are reasons to both consider and disregard penny stocks as viable investments, and I will help you understand both in this article, so you might be able to make more informed investment decisions.
What Are Penny Stocks In Canada?
First of all, penny stocks can be stocks trading for more than $1. The term penny stocks to denote the stocks that actually traded for pennies (less than $1) would have made sense about a decade or so ago.
But thanks to inflation and its inverse relation to a dollar’s buying power, the definition doesn’t mean sense. So there is a new threshold (through common consent) of $5, and it also carries official weight, at least across the border.
There is no official definition of penny stocks in Canada or penny stocks on the TSX, so many financial experts have adopted the US Security Exchange Commission’s (SEC) definition, albeit with a change.
The SEC has set two criteria for penny stocks:
- Stocks that trade for $5 or less
- Stocks that are not listed on a national stock exchange
The second requirement is usually expanded to include stocks that are traded in an over-the-counter market (OTC). These markets offer less transparency and are less rigorously regulated, which makes it significantly more complicated for a retail investor to successfully execute trades there.
But this part of the definition doesn’t really apply to Canadian investors since Canada doesn’t have an OTC. Canadian investors can choose to invest in OTC stocks traded across the border using Questrade.
But if you wish to invest in some of the best penny stocks in Canada, we have to limit the definition to the $5 part. This will give you access to the largest possible pool of penny stocks, and more choices mean a better shot of finding clear winners.
14 Of The Best Penny Stocks In Canada
An overview of some of the best penny stocks in Canada might give you a better idea of the companies behind penny stocks, what kind of businesses they are, and whether they should be defined by (and averted on the basis of) their share price alone.
I tried to keep the selection diversified because sectors like metal and mining (materials) and energy might have more penny stocks than real estate or healthcare.
And apart from metrics like 5-year CAGR (for growth), I’ve also taken things like the nature of the business, its long-term prospects, and the company’s relative position in its industry into account.
Also, note that you will find relatively few penny stocks worth considering when it comes to dividends, so it’s a good idea to focus on growth potential when it comes to most penny stocks.
1. Sangoma Technologies Stock (TSXV)
Market Capitalization: $476 million
5-Year CAGR: 60%
Sangoma Technologies is a Markham-based company and was founded in 1984. It provides communication technologies, mostly to its B2B clients. These technologies used to be PBX; now, it’s mostly about VoIP and cloud.
- Sangoma is a powerful growth stock with a history of consistent growth, at least since 2016.
- It has a strong balance sheet, and the revenue is steadily growing.
- It is a decent-sized player in a relative niche market with a comprehensive product line.
2. Hamilton Thorne Stock (TSXV)
Market Capitalization: $233 million
5-Year CAGR: 40.6%
Hamilton Thorne is another tech sector’s penny stock that you can invest in. It’s a US-based company that focuses on precision laser and medical diagnostic tools that utilize these lasers. The company has a decent product range.
- A consistent grower for at least the last five years.
- It generates most of its revenue through the consumables of the instruments/products it sells, which is a stable income stream.
- It has a geographically diverse consumer base and distributors all across the world.
- It’s a leader/well-known name in a relative niche market.
3. Baytex Energy Stock (TSX)
Market Capitalization: $2 billion
5-Year CAGR: -8.2%
Baytex clarifies a few misconceptions investors have about penny stocks. It’s a mid-cap stock, and it also trades on the TSX. One major reason it’s counted among penny stocks is that it has fallen far from its 2011 (glory-days valuation) and is not trading for a fraction of that price.
- It’s quite undervalued right now.
- Energy is making a strong comeback, and Baytex stock has grown almost 690% in the last twelve months.
- It focuses on natural gas as well as oil, so it might not be completely out of place in a green future.
4. BTB REIT (TSX)
Market Capitalization: $295 million
5-Year CAGR: 6.8% (including dividends)
BTB REIT is a commercial REIT that has been operating since 2005. It has a diversified portfolio of 65 industrial, office, and retail properties and a decent tenant base. The total portfolio is worth about $924 million. It’s one of the few penny stocks that are great for dividends.
- Offers a powerful 7.46% yield. It had already slashed its dividends once in 2020, it might not do so again, especially if it recovered financially.
- Gives you exposure to commercial real estate.
- Unlike many growth-oriented penny stocks, they can be kept for a long-time (for dividend-based passive income).
5. Uranium Royalty Stock (TSXV)
Market Capitalization: $421 million
5-Year CAGR: N/A (1-year returns: 345%)
Uranium Royalty, while not one of a kind, is certainly part of a very limited pool. It’s a pure-play uranium royalty company with interests in North America and Africa. The company allows you exposure to uranium metal directly, which is currently a very hot asset class.
It might also remain relevant and profitable if uranium is used as the transition fuel to help the world convert from fossil to renewable.
- Offers direct exposure to a powerful commodity (which can also be dangerous for your capital).
- It has almost no debt and a decent amount of cash and short-term investments.
- Has shown amazing growth since its inception (which is quite recent).
6. Xebec Adsorption Stock (TSX)
Market Capitalization: $406 million
5-Year CAGR: 92%
Xebec Adsorption is a clean-tech solutions company. It provides systems and solutions for things like on-site hydrogen/nitrogen generation and gas purification, mostly to industrial clients. It has been operating since 1967 and has installed its systems in several different countries across the globe.
- It was a powerfully consistent growth stock till its post-pandemic peak. It’s going downhill since, but it’s poised for recovery and another growth run.
- The company will have more growth opportunities as the world switches more rapidly to clean energy and industrial processes.
- It has a global reach and a well-diversified product range.
7. POET Technologies Stock (TSXV)
Market Capitalization: $441 million
5-Year CAGR: 7.69%
POET technologies focus on optics and optics-based communication within electronic devices. Its solutions are used in data centers, telecom hardware, IoT devices, etc. The company has carved a strong place for itself in a niche technology market.
- It has shown cyclical growth in the past, so if you buy low, you might get multiple chances of selling the company at a 200% or more profit (based on previous data).
- It has impressive patented technology, so a few large orders can drastically change the size of its revenue stream.
- It has almost no debt and a strong balance sheet.
8. B2Gold Stock (TSX)
Market Capitalization: $4.8 billion
5-Year CAGR: 10%
B2Gold is another mid-cap stock on this list of penny stocks. It’s an “international, senior low-cost gold producer.” Three of its international mines (in Asia and Africa) are already producing gold, and two are in development. The company also has a few exploration projects in place.
- Gold is a great way to diversify your portfolio and hedge against inflation and market fluctuations.
- The company also offers dividends (current yield: 3.5%).
- Unlike many other gold mining companies, B2Gold has shown decent growth during strong market conditions as well.
9. Champion Iron Stock (TSX)
Market Capitalization: $2.3 billion (AUD)
5-Year CAGR: 79%
Gold is not the only useful metal you can invest in. Iron is usually a good bet, especially when construction projects around the globe keep the demand up. Champion Iron is a cross-listed Australian company with two flagship projects in Canada (both in Quebec).
- It’s a powerful and relatively consistent long-term growth stock.
- It’s open to three investor pools (Australia, US, and Canada).
- Its finances are rock solid (though highly dependent on iron prices and demand).
10. American Lithium Stock (TSXV)
Market Capitalization: $456 million
5-Year CAGR: 3.55%
Lithium’s prospects as a metal started improving alongside the demand for batteries for both EVs and renewables (solar panels). The demand fluctuates, but the pace at which EVs are entering the market and replacing fossil-based vehicles indicates that demand for lithium is likely to grow in the next five to ten years.
- Gives you exposure to a highly in-demand commodity (with great future demand prospects).
- It might add uranium to the portfolio as well.
- Geographically diversified project portfolio.
- Long roots. The company has been around since 1974.
11. Cloud MD Software Stock (TSXV)
Market Capitalization: $334.8 million
5-Year CAGR: N/A (3-Year CAGR: 22.3%)
Another tech stock that might have more future potential than what it has displayed now. The company focuses on digitizing healthcare delivery, like facilitating telemedicine.
This is a nascent segment of overlap between healthcare and tech, and it might see explosive growth as more insurance providers start adding it into their offerings.
- The company has shown relatively stable growth since inception, but it also showed explosive growth potential in the beginning.
- Minimal debt and rapidly growing revenues.
- Has already established a sizeable digital network.
12. HIVE Blockchain Technologies Stock (TSXV)
Market Capitalization: $1.47 billion
5-Year CAGR: 153%
This highly volatile penny stock gives you exposure to one of the most volatile asset classes out there, i.e., crypto. This compounds the risk three-ways: It’s a penny stock, also a tech stock which tends to be relatively more volatile, and focused on a highly volatile asset class. Still, the potential is enormous.
- It gives you a great way to invest in crypto and take advantage of monstrous growth potential in registered tax-sheltered accounts (something you can’t do with crypto directly).
- It has an international portfolio of mining assets.
- Thanks to the countries it operates in (Canada, Sweden, and Iceland), its mining operation is 100% green.
- It also mines Ethereum (diversification within the asset class).
13. FOBI AI stock (TSXV)
Market Capitalization: $419 million
5-Year CAGR: N/A (1-Year Return: 819%)
FOBI AI has already proven its mettle as a growth stock. The stock has grown about 470% since its inception and over 800% in the last 12 months alone. It’s a data intelligence company that allows businesses to gain better financial visibility and leverage personalized customer engagement techniques.
- FBI already has a service/product line that utilizes AI for generating tangible results and helps businesses improve their customer relationships and retention numbers.
- The company (thanks to its technology focus) can thrive alongside rapidly growing e-commerce.
- FBI has explosive growth potential, thanks to its focus on data and AI.
14. OrganiGram Holdings Stock (TSX)
Market Capitalization: $863 million
5-Year CAGR: 5.2%
OrganiGram might be one of the best penny stocks in the marijuana sector. And it’s a sector that’s on the verge of exploding again (waiting for the US marijuana legalization).
The primary reason for choosing this stock it has already shown stable growth potential, and if the market starts to thrive, the company can do so again.
- The company has almost no debt and a lot of cash (which is contrary to the industry norm).
- It has a sizeable, tech-heavy indoor production facility, which offers them more control over the yield as well the quality of their products.
- It has both medicinal and recreational product lines.
Honorable Mentions Of The Best Penny Stocks In Canada
For the list above, I tried to stick to penny stocks you can hold long-term in your portfolio without the fear of the company going out of business and your capital from permanently sinking.
But if you have a healthier risk appetite and a bit of disposable investment capital, you can look into penny stocks that offer explosive growth potential (when the market conditions are just right).
Following is the list of some of the penny stocks that grew to powerful proportions post-pandemic and the returns you would have enjoyed if you bought and sold at precisely the right time, i.e., bought during the crash and sold at the post-pandemic recovery peak.
Drone Delivery Canada: About 268% returns in less than 11 months
Quisitive Technology Solutions: About 490% returns in less than 14 months
FP News Paper (Nano-cap stock): About 625% returns in less than 16 months
Fission Uranium: About 715% returns in 1.5 years
Gear Energy: About 944% returns in less than 19 months
Real Brokerage Inc: About 4,700% returns in 13 months
Emerita Resources: About 6,500% returns in less than 17 months
These are just a few examples of the explosive potential penny stocks tend to offer. But you have to understand that it’s a biased, best-case scenario. Penny stocks can also help you lose money just as aggressively.
Penny Stocks vs. Nano/Micro-Cap Stocks
The term penny stocks are often used interchangeably with micro-cap (and sometimes, nano-cap) stocks. Sometimes, investors just confuse the two.
For penny stocks, the word “penny” refers to the price the stock is trading at. So it makes more sense to keep the definition of the stock limited to the price itself and not bring market capitalization into the mix.
Micro-cap stocks, on the other hand, are stocks whose market capitalization lies within a specific limit, i.e., $50 million to $300 million. Stocks with a market capitalization lower than $50 million are considered nano stocks.
Now, there are many stocks that are both penny stocks (based on their price alone) and micro-cap or nano-cap (based on their market capitalization).
But if you consider being a micro-cap an essential requirement for penny stocks, you will drastically limit the pool of assets you can invest in. It will only be the overlap of the two. Therefore, we will stick with the less-than-$5 requirement for penny stocks.
TSX Stocks Under $1
Another misconception about penny stocks and their relationship to the major Canadian stock exchange (TSX) that some retail investors might have is that there are no TSX stocks under $1.
Or that TSX stocks that fall below $1 no longer trade on this exchange and are moved to junior exchanges, like TSX venture capital stock. But that’s not true.
Many major companies sometimes see their share price dip below $1, but they are not kicked off from TSX.
However, it’s also true that there are relatively few TSX stocks under $1 (still over a hundred) compared to TSXV or NEO exchange.
The Pros And Cons Of Penny Stocks And A Few Suggestions
Everything has its pros and cons, and penny stocks are no exception. They are risky, and realistically speaking, the growth potential they offer doesn’t usually offset the risks they come with.
But either with extreme luck or a perfectly refined investing strategy (or a combination of both), you can get the best out of penny stocks.
Can You Get Rich Off Penny Stocks?
Yes. Penny stocks tend to offer explosive growth potential, and when the market conditions are right, they can help you grow your capital several times over in a matter of months.
Five out of the fourteen best penny stocks in Canada stated above have a five-year CAGR powerful enough to double your investment capital in less than a year.
So yes, if you invest at just the right time, in the right penny stock, and exit at (or near) the peak, you can get quite rich and quite fast. But that’s a lot of ifs that have to align in just the right way to help you get rich with penny stocks.
Can You Go Broke By Investing In Penny Stocks?
Absolutely. If you invest an unhealthy portion of your investment capital in these penny stocks and you don’t keep track of your portfolio to pull out of losing penny stocks as soon as their downhill motion is confirmed, you can easily lose a significant portion of your money.
Still, they are stocks and not options, so you can’t lose more than what you have invested in them, but the chances of a company behind a penny stock going out of business and your stake dropping to $0 are relatively high with penny stocks than others.
How To Safely Invest In The Best Penny Stocks In Canada?
The answer to this question would be different for different investors. If you are a long-term investor, you should look for penny stocks that are:
- Financially stable, have little to no debt, and a strong balance sheet.
- Offer relatively less explosive but consistent growth (ideally, over several years).
- From different sectors and market segments. Don’t concentrate too much on one sector (unless you understand the sector thoroughly and have a relevant strategy).
- When it comes to tech companies, time-tested product/solutions or innovations that are already gaining traction (like AI, cloud, blockchain, IoT, etc., are nowadays) might offer more promising returns compared to long-shot technological innovations that may or may not be groundbreaking.
- Ideally, have a decent position in a niche market, with few or no major competitors (that’s a tall order for sectors like materials and energy).
If you wish to leverage the short-term upside of penny stocks, you might look for market trends and sector-based trends. Many penny stocks tend to offer magnified returns when the sector (as a whole) is growing.
Energy stocks are exhibiting this phenomenon right now, and many tech sector penny stocks did the same right after the 2020 market crash (when tech led the stock market recovery).
These once-in-a-decade opportunities might be more suited for disposable investment capital rather than the hard-earned money you wish to grow for your retirement.
One way to invest in penny stocks that I would recommend is to create a penny stock portfolio and keep it separate from your main portfolio. If you are risk-tolerant enough, you can divert just one-sixth of your TFSA portfolio (that’s about $1,000 a year) into a risky penny stock portfolio.
Buy the best penny stocks in Canada and track the progress (for at least three to five years). Some oversized gains might help you balance out some massive losses.
If you believe your penny stock portfolio is adequately profitable, you can divert more amount to it. The reason for tracking penny stocks separately is because if you only invest a fraction of your total capital in them, both their profits and losses might get lost in the numbers from more stable assets of your portfolio.
How To Buy Penny Stocks In Canada
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Penny stocks are exciting, risky, highly volatile, and extremely promising.
You can try and mitigate these losses by finding financially stable, small-to-mid-cap penny stocks and taking advantage of their volatility by actively tracking (tracking, not trading) their progress and selling when the time is right instead of holding on to them for long-term.
Still, the risk is there, and if you don’t have the right amount of risk tolerance and investment acumen to tackle these murky waters, it’s better that you don’t jump in at all.