Top Penny Stocks

Top penny stocks this month include ADMA Biologics Inc., Borr Drilling Ltd., and Nordic American Tankers Ltd., which have climbed by as much as 173% in the past year as the small-cap Russell 2000 Index lost almost a fifth of its value and the large-cap Russell 1000 Index fell 17%.

Penny stocks are defined as equities that typically trade at $5 a share or less, and owning them can be risky because they have low liquidity and trade mostly over-the-counter (OTC), incurring higher trading costs. These equities have come under increasing scrutiny by the Securities & Exchange Commission after trading activity in penny stocks reached the highest level in a decade last December.

Here are the top penny stocks in three categories: best value, fastest growth, and most momentum, respectively. All data are as of Dec. 19.

Best Value Penny Stocks

These are the penny stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.

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• Safe Bulkers Inc.: Safe Bulkers transports cargo including coal, grain, and iron ore across global shipping routes.
• Ring Energy Inc.: Ring develops, produces, and explores for oil and natural gas in Texas and New Mexico. Net income for the latest quarter was about five times the level of the prior-year quarter and revenue nearly doubled to $94 million as a result of higher sales volumes and oil prices.
• GrafTech International Ltd.: GrafTech makes graphite electrodes used in the production of ferrous and nonferrous metals. The company on Nov. 18 announced plans to restart its Monterrey, Mexico operations following a temporary suspension notice issued on Sept. 15 for violating state environmental regulations. The facility accounts for 30% of the company's production capacity and will restart after making final changes required by state regulators.

Fastest Growing Penny Stocks

These are the top penny stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax laws or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

^{Source: YCharts}

• Ring Energy Inc.: See company description above.
• Conduent Inc.: Conduent sells human resources and other business services to customers in the industrial, transportation, and government sectors.
• Rocket Lab USA Inc.: Rocket Lab provides space launch services, satellite manufacturing, and spacecraft components. The company doesn't have an EPS growth figure above because it had negative EPS in the latest quarter. Rocket Lab said recently that it rescheduled the launch of its first Electron mission from U.S. soil from December 2022 to January 2023 because of weather and the need to complete regulatory documentation. The January mission will launch three satellites for HawkEye 360, a geospatial analytics company.

Penny Stocks With the Most Momentum

These are the penny stocks that had the highest total return over the past 12 months.

^{Source: YCharts}

• ADMA Biologics Inc.: ADMA is a biotech company that manufactures, develops, and markets biologics for the treatment of immunodeficient patients. Its drugs target individuals with immune-compromised or immune-suppressed systems. Revenue doubled in the third quarter due to rising sales of its treatments for immune-compromised and immune-suppressed individuals. On Dec. 13, ADMA said that the FDA had approved its supplemental Biologics License Applications for its therapies Bivigam and Asceniv to allow for both to be stored at room temperature for up to four weeks, allowing the company to reach a broader customer base.
• Borr Drilling Ltd.: Borr is a Bermudian international drilling contractor that owns and operates jack-up rigs to serve the oil and gas exploration and production industry worldwide.
• Nordic American Tankers Ltd.: Nordic is a Bermudian international tanker company with a fleet of about two dozen tankers. The company reported a third-quarter net profit of $10 million compared with a $46.6 million loss in the prior-year quarter while net voyage revenue was nearly 5 times the level a year before. The gains were driven by rising business volume and a surge in shipping rates.

Advantages of Investing in Penny Stocks

Potential for High Returns: Most penny stocks have tiny market capitalizations, meaning it takes a small amount of money to move their share price substantially. Therefore, positive news, such as signing on a major customer or forming a new strategic alliance, can lead to sizeable returns before the mainstream investing world discovers the stock. Conversely, negative news can lead to significant losses.

Leverage: Penny stocks attract investors with a small amount of trading capital as their lower share prices allow them to buy thousands of shares. For example, if an investor has $500 to invest, they can purchase 2,000 shares of a penny stock trading at 25 cents. If that stock doubles over a month, the investor makes a quick 100% return on their investment. However, with the same starting capital, the investor could afford only a small number of shares in most S&P 500 stocks, making it almost impossible to achieve those gains over the same period.

Risks of Investing in Penny Stocks 

Low Liquidity: Penny stocks often trade on thin volume, meaning it can be difficult for investors to enter and exit their positions. Moreover, these stocks typically have a wide spread between the bid and ask, which increases trading costs. For example, if a penny stock has a bid price of $1.00 and an ask price of $1.50, a trader wanting to buy at market gets caught paying a 50 cent per share premium. Therefore, investors should use limit orders to minimize trading costs when buying and selling penny stocks.

Extreme Valuations: Penny stocks that start moving rapidly higher in price show up on stock screeners and may even get media attention. This often attracts more speculators who push prices up even higher, leading to unstainable valuations. For instance, during the dotcom bubble in the late 1990s, many penny technology stocks doubled and tripled in price despite not generating any earnings. However, when the market turned bearish a few years later, many Nasdaq-listed penny stocks with unsustainable valuations fell substantially or were delisted.

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