The healthcare industry can be precarious for stocks of large companies, much less penny stocks. Nevertheless, smaller companies that capture a niche can grow much faster than large caps. That higher reward potential comes with higher risk.

Small-cap healthcare companies can be nudged out of the market by big competitors, and they can simply become unable to service debt when products and services don’t sell quickly enough. All this makes the stalwarts below more attractive.

None of these are new companies, but they have found products and marketing outlets that are sustaining them. Investors have been sending these stocks higher lately, and it looks like they may carry their gains forward well into 2017.

Because of the higher risk, investors should continuously perform due diligence. Watch for product failures, closing markets or excessive competition moving in. (See also: Understanding Penny Stocks' Risks and Rewards.)

Let's look at how our top three picks break down. All figures are current as of May 13, 2017.

Curis Inc.

Curis (CRIS) is engaged in biotechnology with a focus on developing drugs that treat cancers. It does significant amounts of research and collaborates with other drug makers in testing and developing drugs. That means it must put drugs through trials and get approvals, which of course means the stock can fluctuate depending on the outcome for any given drug.

Profits have been less than robust while the company focuses on research. However, management says it is now ready to bring many drugs to market that will produce profits going forward.

The stock began a steady upward march in September 2016, but has given back all of its gains. It seems to be bouncing off of support at around $1.80 per share. Volatility is high, but this is good for investors who want to build a position by buying at support levels. In the latest earnings report of May 4th, the company showed revenues increased 28.8%, but earnings per share dropped 57.1%. Curis has been increasing its research and development expenditures, which has negatively affected the bottom line. Operating income continues to decline.

Investing in this stock must be based on whether investors see promise in the company's drug pipeline. If the company brings its drugs to market soon, the current price could be a bargain.

China Pharma Holdings Inc.

China Pharma (CPHI) develops and markets a broad range of products in China, targeting hospitals and retailers. The drugs are focused on cardiovascular applications, brain diseases, and infectious diseases. When the Chinese company reports, it tends to have the majority of its assets as receivables, so investors should consider that many companies do not collect all of their receivables.

CPHI is completing a deep and long base. This kind of formation can result in a breakout once all the sellers have gotten out. Since the beginning of last December, buyers have been dominating. The rally started with a significant price jump accompanied by higher volume. This means buyers were enthusiastic and the number of shares changing hands dramatically increased.

The stock gave back some of its gains but has climbed again, and could be ready to reach a higher point than the top of the breakout. On March 31st, the company reported that it has reduced its losses. Yearly revenues decreased by 23.5%. Investors who buy this stock are hoping for the release of effective and popular drugs. As with all penny drug stocks, buyers of this stock must be willing to sit out long periods of volatility while waiting on profitability to return.

It is important to remember that China monitors and controls companies closely, so any investor in this stock is getting exposure to the geopolitical influences that could affect the stock.

Repligen Corporation

Antibodies dominate the product line for Repligen Corporation (RGEN). The company sells worldwide, and has been in business since 1981. Quarterly revenues have been rising, and operating income is slightly up for the past four quarters.

The stock price has broken through resistance at around $34 per share, and has climbed since then. Operating income and revenues have been rising the past four quarters.

Repligen's longevity offers stability. It would be very unlikely that this company would disappear, given its strong product line and marketing effectiveness.

The Bottom Line

Penny health care stocks are high risk. Trials of drugs can produce negative results, and the market may not readily accept a new drug. On the other hand, a successful drug can cause a penny stock to soar and give investors profits they wouldn’t expect from more expensive stocks.

It is wise to limit the percentage of your portfolio you keep in penny healthcare stocks. These are speculative plays.

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