Top Penny Stocks for March 2023

Penny Stocks With the Most Momentum

 
Price ($)
Market Cap ($M)
12-Month Trailing Total Return (%)

Ardelyx Inc. (ARDX)
3.04
569.9
333.2

Arafura Rare Earths Ltd. (ARAFF)
0.41
874.3
176.1

Geron Corp. (GERN)
2.81
1,071.3
172.8

Russell 1000 Index
N/A
N/A 
-9.5

Russell 2000 Index
N/A 
N/A
-7.4

Source: YCharts

• Ardelyx Inc.: Ardelyx is a biotechnology company that discovers and commercializes a variety of novel therapies for unmet medical needs.
• Arafura Rare Earths Ltd.: Arafura is an Australian mining company targeting rare earth minerals. The company announced in late February that it had entered an agreement with Chemetics to supply its sulphuric acid plant in Australia’s Northern Territory. The terms of the deal were not disclosed.

• Geron Corp.: Geron is a biotechnology company that develops and commercializes therapeutic products for blood cancers.

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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