Top Penny Stocks for Q2 2023

Top penny stocks this quarter include Ardelyx Inc., Snowline Gold Corp., and Nordic American Tankers Ltd., which have each climbed over 100% in the last year while the small-cap Russell 2000 index has dropped 17% and the large-cap Russell 1000 has shed 13%.

Penny stocks are defined as equities that typically trade at $5 a share or less. 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 and Exchange Commission amid multiple high-profile fraud cases.

Here are the top penny stocks in three categories: best value, fastest growth, and most momentum, respectively. All stock data are as of March 21 and all index data are as of March 26.

Best Value Penny Stocks

These are the penny stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. A low P/E ratio indicates you're paying less for each dollar of profit that could be returned to you in the form of dividends or buybacks.

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• Cemex SAB de CV: Cemex is a Mexican building products company producing and selling cement, concrete, and other building materials throughout the Americas, Africa, and Europe. Cemex in February received a $3.2-million award from the U.S. Department of Energy to develop a joint cement production decarbonization project with Sandia National Laboratories and Synhelion.
• ECN Capital Corp.: ECN is a Canadian financing company serving banks, credit unions, pension funds, and related customers. The company reported earnings of $0.02 per share in the final quarter of 2022.
• Marfrig Global Foods SA: Marfrig is a Brazilian food processing company that is the second-largest producer of beef in the world.

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 year-over-year revenue and earnings-per-share (EPS) growth in the most recent quarter. 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 1,000% were excluded as outliers.

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• Inter & Co. Inc.: Inter & Co. is a Brazilian investment holding company. It holds all shares of the Brazilian digital bank Banco Inter. In February, Inter announced the acquisition of YellowFi Mortgage LLC and YellowFi Management LLC for an undisclosed sum in an effort to expand its product offerings in the U.S.
• Brandywine Realty Trust: Brandywine is a real estate investment trust (REIT) that acquires, develops, and manages science labs, office spaces, and residential properties. The company's real estate portfolio includes properties in Austin, Washington, D.C., and Philadelphia. On Feb. 16, Brandywine Realty declared a quarterly dividend of 19 cents per share that is payable April 19.
• Lloyds Banking Group PLC: Lloyds is a British banking and financial services company offering retail banking, mortgages, asset management, insurance, and more.

Penny Stocks With the Most Momentum

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

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• Ardelyx Inc.: Ardelyx is a biotechnology company that develops and commercializes novel therapies for unmet medical needs.
• Snowline Gold Corp.: Snowline is a Canadian mining company that explores and develops gold-producing properties in the Yukon.
• Nordic American Tankers Ltd.: Nordic American is a Bermuda-based international shipping company that owns and operates oil tankers around the world. Net profit for the final quarter of 2022 more than tripled on a sequential basis, while the company posted a net loss for the fourth quarter of 2021.
  

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 unsustainable 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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