Last Updated on April 6, 2022 by Carl Jensen
Everyone has to start their stock trading journey somewhere. Some people start by investing in big industries and companies that have seen nothing but growth for ten years. Many people try day trading, trying to catch stocks as they make small changes throughout the day. But there is another way.
Trading penny stocks is a great place to start if you are new to stock trading. This is because it’s very much like normal day trading, but on fast forward. Everything in penny stocks happens much faster than it does with normal stocks. This means you do not need as much patience to get results.
But perhaps more importantly, you also do not need a huge amount of capital to get started trading penny stocks. We’re getting ahead of ourselves though. What is a “penny stock”?
Table of Contents:
What is a Penny Stock?
Penny stocks have a specific definition: Any stock valued under five dollars per share is a penny stock.
This is important, as it should dispel a few presumptions people have about penny stocks. For instance, penny stocks do not have to be valued at “a few pennies” per share. This perception circulates broadly and rapidly, but you can probably see why its lack of precision can become a problem for people.
If the penny stock label was attached to a stock that traded for “a few pennies”, what would the exact number of pennies be? Five? Ten? Having a specific price for the definition of the term is important. Only once the price is specific can it be regulated. The $5 price was chosen for that reason.
Penny stocks also do not exclusively return yields in pennies. It is likely they will, but that is a matter of your size of investment as much as it is a matter of the stock’s value appreciating within a given time.
Why Buy Penny Stocks?
This is the question that most experienced traders find themselves asking. Why even bother? Why not day trade for $100 a day with Amazon shares? Well, that is the safer option for sure. And penny stocks are not going to be able to provide you with the stability of income. So, why even bother?
Volatility is what makes penny stock unattractive, but it is also what gives them allure, particularly to new investors. The thing about volatile stocks is that you might lose all your money… But you might also multiply all your money. Newer investors love those odds since they appeal to a gambler’s mindset.
Even experienced stock traders will find some value in penny stocks’ volatility. Essentially, penny stocks do not require patience. Instead, they require fast paced application of every other principle of stock trading: Technical analysis, fundamental analysis, and a basic knowledge of how your platform works.
This means that if you do not have the patience for the normal stock market (or, more likely, the time for it) then penny stocks are a good way to trade to see smaller rewards more quickly.
With all that in mind, here is a question: Which penny stocks should you be trading in Canada? To help answer that, we have looked high and low at the big movers in the stock market. Here is what we came up with. Just remember to trade carefully and at your own risk.
10 Best Penny Stocks Canada in 2022
- Crew Energy Inc. – Best Overall Penny Stock
- Aurora Cannabis – Best Cannabis Penny Stock
- Northern Dynasty Minerals – Best Penny Stock Worth Less Than a Dollar
- Hive Blockchain Technologies – Best Blockchain Penny Stock
- IAMGOLD Corporation – Best Gold Penny Stock
- Exro Technologies – Best Green Energy Solutions Penny Stock
- Taseko Mines Limited – Best Commodity Harvester Penny Stock
- Ventripoint Diagnostics – Best Medical Penny Stock
- Petrus Resources – Best Property Penny Stock
- Chorus Aviation – Best Domestic Transportation Penny Stock
1. Crew Energy Inc. – Best Overall Penny Stock
Crew Energy is a good investment right now because most companies in the energy sector are fighting for their lives. Crew Energy’s shares are cheap, and their fight is fierce but difficult as a result.
The energy sector is seeing a lot of instability right now due to a situation in Europe that you might have heard of: Russia’s war of aggression in the formerly Soviet nation of Ukraine. But why is that? What does the war in Ukraine have to do with the energy sector? Well, it comes down to oil, as many wars do.
The War’s Effect on Oil
- Russian supplies about one fourth of the oil traded in the world. It is a nation of massive oil reserves. When NATO countries sanctioned it shortly after the war began, that meant restricting the amount of oil bought from Russia. This resulted in a supply crisis, and when supply goes down in an industry, the maximum stock price of companies in that industry goes down.
- While the true purpose of the war is unclear, one thing is certain: Securing Ukraine, or even securing the easternmost areas of Ukraine, will provide Russia the land it needs to build an oil pipeline to the middle east. This will give them greater access to middle eastern oil, allowing them to purchase and transport it at a greater speed and volume than any NATO nation. In short, Russia threatens energy dominance if they win.
Obviously, Crew Energy is far from the only energy company suffering from these effects. It is not even the only energy company on this list. It does, however, have two things that other energy companies do not: More than 2 million shares in circulation, and a regular price change of more than 2%.
These two factors combine to make it a penny stock that is easy to get a hold of and get value from.
2. Aurora Cannabis – Best Cannabis Penny Stock
More than five years ago the idea of a cannabis stock of any kind would be laughable. Now it’s still laughable, but a different kind of laughable. Aurora Cannabis is a company whose stock regularly bounces between being a penny stock and not being a penny stock.
Naturally, this happens because it means the stock will regularly go from being worth $3, to being worth more than the $5 penny stock limit. But why does this happen? In the case of Aurora Cannabis, there are two things at play here. The first comes down to what’s known as the “Buffet Business Rule”.
The Buffet Business Rule
Imagine a business that is run by an idiot. Now, that business might be run by an idiot right at this moment. But if it ever gets competent management, then its profits will probably soar.
The inverse is also true. If a business is so simple to run that an idiot can run it, then in the fullness of time an idiot will run it. This just happens as businesses get complacent in their management.
These two rules can be applied to tons of industries, but they have the most readily apparent effect in new and booming industries. Cannabis is both new and booming. Aurora Cannabis has recently had a management restructuring that means it is likely to profit from good management.
As a result, you can generally expect the company to grow in the following months.
The other factor contributing to its growth has nothing to do with the company itself, but instead with the world around it. The United States House of Representatives recently scheduled itself to hear a bill on federal cannabis legalization. While this does not mean cannabis is legal, it means it is closer to legal.
While cannabis is legal at the state level in several US states, it remains illegal at the federal level. Even the possibility of cannabis being legalized federally has the industry abuzz with the business opportunities it presents. The fact that it is not set in stone, however, keeps things volatile.
Volatile enough to make money off of.
3. Northern Dynasty Minerals – Best Penny Stock Worth Less Than a Dollar
Let’s do some quick math.
You spend $100 on a $100 stock. It increases in value by 1%. How much did you make? Easy: $1.
Now, what if you spend $100 on a $10 stock? You get 10 shares in that stock. It increases in value by 1%. How much did you make? Also $1. So, what is the difference between spending $100 on a single $100 stock, and spending $100 on ten shares of a $10 stock? The answer to that is market forces.
How to Think of Market Forces
For a $10 stock to increase in value by 1%, it only needs to get 10 cents more valuable. For the $100 stock to increase in value by 1%, it needs to grow in value by a whole dollar. Northern Dynasty Minerals regularly trades at prices ranging from $.45 to $.50. It does not take much to move it.
Imagine you spend your $100 on a $.45 stock. That is more than 200 shares. If the share price goes up to $.50, then that is a $10 profit for you as a result of not a lot of market forces.
This is what people usually think of what they think of trading penny stocks. It is normal for a penny stock to shift $.05 in a day. And, because of the price of the stock, it is normal for people to buy hundreds upon hundreds of shares in order to make a profit off this mobility.
You have to be careful, however. Only do this with companies that have been around for more than ten years, otherwise you are putting yourself at a lot of risk. Also, keep an eye on the volume of the company. If it has less than 100,000 shares in circulation, then that is a huge red flag.
4. Hive Blockchain Technologies – Best Blockchain Penny Stock
If you are a highly traditional stock trader, then you might be skeptical of cryptocurrency. In fact, you do not even have to be highly traditional. Most people are skeptical of cryptocurrencies. It really is the newer traders that tend to get excited about it. Everyone else has trouble grasping it.
Hive Blockchain Technologies is a company that invests in cryptocurrency, meaning that if you want to get in on the growth of cryptocurrency without the risk or complexity of buying the currency yourself, then companies like Hive are a great place to start. But why Hive in particular?
Green Powered Crypto Mining
Most companies with the word “blockchain” in them tend to either put their money into crypto mining farms or research ways to innovate on crypto mining. Crypto mining is the act of dedicating a computational device of some sort to solving math problems for the systems that cryptocurrencies use.
The faster and more powerful the device you use to solve these math problems, the greater the volume and complexity of the problems you solve. When you solve these problems, you are credited a small fraction of a cryptocurrency token. Solve enough problems, you get a whole token.
But because this process requires fast and powerful computers, it can be intensive on the environment. In fact, the European Union recently passed legislation that created regulatory guidelines for how crypto mining farms could be organized. Enter Hive: A crypto mining company based on green energy.
While Hive is small now, it will not be small forever. It sprung up around a need for more efficient and eco-friendly crypto mining. That will lead to a boom that will normalize as the industry goes that direction naturally. So, appreciate the volatility and low prices while you can.
5. IAMGOLD Corporation – Best Gold Penny Stock
Everyone says to buy gold when you are expecting uncertain times. Gold is tough, heavy, recognizable, a surprisingly good conductor, and highly valuable to people. Not all of these traits are necessarily related, but they do add up to one thing: Gold is a pretty safe investment.
So, if you are on the stock market, how do you buy gold? Well, gold as a commodity is usually unrefined gold. It was mined from somewhere, and now it has to be shipped off to be sold to a company who can refine it to be turned into the bars and coins we know. That’s a complex process.
Of course, there are companies that own facets of that whole process. IAMGOLD is one such company. They own gold mines, transportation methods, and refineries that can turn gold ore into gold jewelry. They are also one of the few gold companies whose shares are technically penny stocks. Why is that?
How Shares Get Cheap
There are three things that can lower the price of a share: Demand for a company’s services getting lower, supply provided by a company getting lower, and the number of shares in existence getting higher. That last one stands out from the other two for being a situation where something is being added, rather than taken away. So, how does that work? How do more shares come into existence?
The answer is simple: A company “prints” more. In this case, it means that their shareholders “release” more shares, meaning that they sell more of their investment in a company in smaller amounts.
IAMGOLD’s price is so low not because demand for their services is low, nor is it because of a failure to supply for that demand. Their share price is low because they keep it low. This might seem like an odd choice, but a low share price means that people have an easier time investing in them.
It also means that the price of the company’s shares tends towards rising rather than falling, since the company’s policy is to fight that rise. Were the company always struggling to raise the price, then they would be putting a lot more effort and money into something that looked a lot worse.
6. Exro Technologies – Best Green Energy Solutions Penny Stock
Exro is a green energy company that does contract work for larger companies. Their field? Innovating on existing technologies to find green energy solutions. This is another business model that did not exist much until a few years ago. But as gas runs out and coal becomes less efficient, it has grown.
Lots of people, especially older people who remember the boom in the American economy from the oil and car industry’s growth in the mid to late 1900s, are skeptical of green energy. More than that, they are skeptical of green energy being the basis of a business. So, what makes green energy viable?
The answer lies in the limitations of the combustion engine. Consider your average car engine. Most car engines only capture 30% of the energy produced by burning fossil fuels. Most of the innovations in car manufacturing have been based around changing everything in the car except for the engine.
This is because, simply due to the laws of physics, it is hard to push an engine beyond that 30% threshold. It is easier to make the car lighter than make the engine work harder.
Green Energy is Different
But enter green energy. An electrical engine can convert 80% of its energy into mechanical force. This is more than double a combustion engine’s capabilities. Exro is a company based in finding ways of getting different tools that are otherwise reliant on fossil fuels to instead use this kind of efficiency.
If you want proof of the financial viability of this business model, just look at Tesla. That is what a green energy company looks like when its start-up capital is a million times that of everyone else’s.
7. Taseko Mines Limited – Best Commodity Harvester Penny Stock
Commodities are in an awkward spot right now. But it is the good kind of awkward that makes for good stock trading. Essentially, they are stuck between green energy innovations and fossil fuel restrictions.
Green energy came to extraction equipment long before it came to shipping. The reason was, and continues to be, that diesel engines, shipping liners, and cargo planes all had engines that simply required too much power to reliably employ green energy solutions.
This was particularly noteworthy with shipping liners, which use a form of diesel that is basically unrecognizable on a chemical level from the diesel used in a semitruck carrying a similar load.
Taseko Mines has faced instability recently because of this. Their extraction processes for their mines are more efficient than they have ever been. But due to the turbulence in the transportation industry (which, of course, is a result of turbulence in the energy industry), they have faced turbulence too.
Turbulence All the Way Down
Of course, just because commodities harvesting is reliant on the shipping industry, that does not mean they are equally turbulent. Taseko is not shutting down mines as a result of the transportation industry’s problems. In fact, it has forced buyers to make larger orders to account for supply issues.
All in all, it means that while Taseko’s money is less consistent, it still appears in large bursts. This is exactly what you want to hear from a company whose share price is below $5.
8. Ventripoint Diagnostics – Best Medical Penny Stock
You are going to see a surprising number of American medical companies dealing in penny stocks. The reason for this is because you can track them relative to a surprising industry: Insurance.
Ventripoint is a medical company that has had a focus on providing ultrasounds for patients of various heart conditions. Laws recently changed in the United States that prevent insurers from denying this kind of procedure, allowing the company to open up a bit. The issue it faces is that it didn’t open much.
How Does Insurance Impact Medicine?
Medicine is an industry known for its rough relationship with finance. It all costs money, but because medicine is a need and not a luxury, there are lots of business interests that try to be the one receiving that money. After all, if the money is always going to flow in, you have a good business model.
How it works in the US is that the price of a medical procedure is set by the insurance companies. That means no matter what Ventripoint spends on researching its technology, and regardless of how much they make their technology cost, the price of that service is not in their hands.
Insurance companies can also override a doctor’s advice on what medical procedures someone gets. And for a while, this made Ventripoint a difficult company to invest in. After all, it is making a product that people were frequently not allowed to use. But all that has recently changed.
With the new federal laws on insurance oversight on heart conditions, suddenly Ventripoint has a market. It is still unstable, however, due to not having much marketing.
9. Petrus Resources – Best Property Penny Stock
Canadian property laws are getting more and more lax and are expected to relax even more in coming years. The reason? As ever, oil. In this case it has as much to do with the general oil reserves as it does with the sanctions on Russia. No one in the west was very energy independent to begin with.
Each individual nation is going to run out of oil at a different rate. Canada has the US to support it, but that relationship is not infallible. Canada has to struggle for oil within its own borders. Luckily, it has a huge landmass that is relatively untouched. The problem is that no one really owns it.
The government technically owns it, but the government is not going to spend time and money exploiting the land when it can just rent the land out to companies like Petrus Resources to do that for them. Petrus Resources is a company that focuses on property exploitation of just this kind.
The trouble is, they have existed as largely a support structure for a while. Now things are different.
Because of the Sanctions?
Yes, because of the sanctions. The sanctions on Russia changed everything. Now, Canada is far more interested in selling its land to prospective exploiters than ever before. It is a simple matter of mathematics: Russia will not go back to doing business with the west lightly, even for oil.
How long will it take for each nation to return business to normal? There are only 56 years of oil left. How many of those years will be wasted with Russia selling half of what they sold before?
Petrus Resources is at a key moment in their business: Will they succeed? Will they fail? That uncertainty is exactly where you can draw a profit.
10. Chorus Aviation – Best Domestic Transportation Penny Stock
Remember the pandemic? It is still technically going on, though the war in Ukraine has obviously become the main “plotline” of the current year. But the economic fallout of the pandemic is still being felt. Businesses are still in the process of reaching the highs they were at previously.
Chorus Aviation is one of those businesses. They are a transportation company that owns several passenger airlines within Canada. They took a hit when many airlines were shut down or heavily restricted and saw a commensurate boom when they opened up and were unrestricted.
How Are They Doing Now?
Well, they could be doing better. Their losses during the pandemic resulted in a shrinkage of the business’ ability to meet supply. A lack of supply means a lower maximum value.
However, a lack of restrictions means a higher minimum demand. That means while its highest price is lower, its lowest price is also higher. In short, the company is relatively stable as far as penny stocks go.
This makes it a compelling long-term penny stock investment that you can still, for the most part, buy and sell as a normal penny stock for day trading. But like many other companies, it is looking to plateau rather than stay a penny stock. Be on the lookout for when they reach their supply limit.
These are the top ten penny stocks a Canadian investor should be looking at. But before you go, you might be wondering: If a penny stock rises and falls in value really quickly, how can one be sure they are getting the best price? What if its price changes faster than you can move to sell it?
We will leave you today with some advice: Use stops to trade penny stocks. That means use stop losses to sell before you lose too much money, as well as limit orders to sell the moment your stock reaches a threshold of value. These are stocks that can bounce between prices rapidly. You need to keep up.
Every stock trading platform will have these tools, so be sure to use them. They will automatically sell your stocks at certain prices to make sure that you can manage your risks.
And that’s what it is all about: Managing your risks, even with something as risky as penny stocks.