If you're looking for some of the hottest Canadian penny stocks on the stock market today, you've come to the right place. We've got 6 of the best penny stocks in 2023. Continue reading to find out what they are!
What is the definition of a penny stock?
The definition of a penny stock is quite broad. You'll get varying answers from different investors. Still, the consensus is that a penny stock is a stock that trades below $5.
However, it's important to note that a lot of popular stocks, ones that don't have the volatility or market capitalization of a penny stock, trade below $5. So here are a few more guidelines to help you narrow down your search:
- Penny stocks are typically smaller companies, and their shares are often illiquid (not easy to buy and sell)
- They have a small following and typically are not covered by major analysts
- They usually trade OTC (over-the-counter, more on this later) or through pink sheets.
Canadians often confuse the term small-cap stock with penny stock. Unlike numerous small-cap stocks, you won't find penny stocks trading on the Toronto Stock Exchange or New York Stock Exchange.
This is often because they are too small to meet the requirements to list on major North American exchanges and don't file the proper paperwork.
How do I buy penny stocks in Canada?
The first box you need to check off if you want to invest in penny stocks is the ability to handle significant volatility. If you can't stomach the risk, head to our How to buy stocks page to start investing in the major exchanges.
I like to tell investors looking to start trading the pink sheets to set aside an amount they would be completely comfortable losing. I wouldn't recommend anyone invest their whole portfolio into penny stocks. But a designated amount, say 5% of your total portfolio, is reasonable.
Many of these penny stocks will not be long-term holds, as most will never come to fruition. You'll look to trade based on the stock's momentum and then exit accordingly. Once you've allocated some capital towards what I call "fun investing," you'll need a brokerage account.
If you already have one, you're ahead of the game. If not, feel free to check out our Qtrade review. I utilize Qtrade myself and believe it to be the best platform in the country. The brokerage was named the top option in Canada for 2023, and I wholeheartedly agree.
One main benefit Qtrade has, especially when you're buying penny stocks in Canada, is that you don't need to pay what they call ECN fees to execute a transaction. This can save you a ton of money. When I was with Questrade, I paid as much as $50 per trade because of ECN fees.
Remember that most brokerages charge more than their standard commission rates to buy penny stocks. This is because the stocks are traded over the counter, which is different than processing a transaction on a regular exchange. So, ensure you understand what you're paying before paying it.
Is it bad to invest in penny stocks?
If you've developed the proper strategy, it isn't wrong to invest in penny stocks.
Where people go wrong is investing money that they can't afford to lose, which puts them in a challenging emotional and financial position.
Penny stocks are, in the end, a gamble. We don't have enough fundamental research to form a concrete conclusion about the company's future. So, you should purchase penny stocks with money you would be comfortable taking to a casino.
As short-term investments, they require a large amount of monitoring as momentum and even a news event can cause considerable movements in price.
Why are penny stocks so cheap?
Penny stocks are often companies that do not meet the requirements or have the funding to list on major exchanges. As such, they typically have low market capitalizations and less stringent requirements.
One requirement to list on major exchanges is a higher share price. With penny stocks, there is no minimum; as such, stocks can trade extremely cheap, sometimes in fractions of a penny. The key to judging the size of a company is not its share price but its market cap. This is an essential concept.
Can you get rich off penny stocks?
Most penny stock newsletters and stock traders will tell you one thing: that penny stocks are the path to riches. It's quite the opposite.
It is possible to become wealthy by investing in the best Canadian penny stocks. But, you must understand that for every success story, someone striking it rich and retiring early off a penny stock, there are a dozen, if not more, disasters of people risking way more than they were comfortable with and losing it all.
You are likelier to go broke than to strike it rich with penny stocks. So, keep this in mind. Invest in solid, blue-chip stocks with most of your portfolio, and spend expendable capital on small companies like Canadian penny stocks.
Can you buy penny stocks on Wealthsimple?
Unfortunately, with a brokerage like Wealthsimple Trade, you won't be able to buy Canadian penny stocks. Why?
When companies aren't listed on a regular exchange like the NYSE,NASDAQ or TSX, they are traded via a broker-dealer network. Transactions occur via a bulletin board (the OTCBB) and Pink Sheet listing services.
These broker-dealer networks communicate with each other and act as market makers. They will locate shares available for purchase or sale and negotiate a price for a fee.
Although most stocks trading over-the-counter cannot make it on the major exchanges due to regulations, they still need to meet requirements to trade OTC. It's not only penny stocks that trade over the counter, either. For example, companies may also issue bonds over the counter.
If you want to find a brokerage allowing penny stock trades, you'll need to stick to one that deals with OTC transitions like Qtrade.
Tips when buying penny stocks
Before you get started, I'll drop you a few quick pointers to buy penny stocks here in Canada successfully. This is by no means a complete list; however, they are some of the most, if not the most, important things you need to know so you don't lose your money.
- When buying penny stocks, be aware that smaller-sized entities may not be required to file documents with the Securities and Exchange Commission (SEC), something bigger companies are required to do. This makes determining a company's financial health nearly impossible, which is why purchasing penny stocks is often thought of as nothing more than a gamble.
- To reduce your risk, try investing in companies listed on the OTCQX or OTCQB exchanges. These are the top and middle tiers of penny stocks, and companies listed on these exchanges will likely have accurate financial information. They will file it on time as well. You could even go to higher Canadian exchanges like the TSX Venture Exchange, where reporting is even more stringent.
- Suppose you're looking for some of the highest returns, albeit the highest risk. In that case, OTC Pink is the lowest tier of penny stocks regarding the financial information provided. These stocks are the most volatile, so they bring with them the highest potential profitability. However, the higher the reward, the higher the risk.
- There are a ton of penny stocks out there, and I suggest using a screener to identify and narrow down your potential list of suitable companies.
- Knowledge of technical analysis is crucial when trading penny stocks. Because limited or inaccurate financial information is available to most investors, fundamental analysis almost plays no part in picking stocks. It can be as simple as promoters featuring the company in a popular newsletter to send the price soaring.
- Analyze the management team. More than anything, they will be responsible for the inevitable failure or success of the company. With startups, in particular, there will be a lot of crucial decisions made by the management team that can make or break an over-the-counter company.
- Avoid social media. Many people promoting penny stocks on social media will be paid to do so.
- Avoid investing in these stocks in your TFSA or RRSP. Use accounts where you can file capital losses if you lose your money. Your tax-sheltered accounts are too valuable to lose the space.
What are the best penny stocks in Canada?
- Greenlane Renewables (TSE:GRN)
- Kodiak Copper (TSXV:KDK)
- Loop Insights (TSXV:MTRX)
- Good Natured Products (TSXV:GDNP)
- POET Technologies (TSEV:PTK)
- Redishred (TSXV:KUT)
Greenlane Renewables (TSE:GRN)
Greenlane Renewables is a provider of biogas upgrading systems. This company was not a penny stock at the height of the COVID-19 pandemic and green energy euphoria. However, it's receded in price and is now trading for around $0.25 and a market cap shy of $40M.
The company's technology and backlog are exciting. It has the resources to grow exponentially from where it is today.
The company is unlike many other penny stocks because it has zero debt and a healthy balance sheet.
Penny stocks are generally not in favour during high-rate environments like we're seeing. This has led to valuations for Greenlane to be extremely attractive. The company is expected to generate revenue of $72M in Fiscal 2024 and is currently trading at a market capitalization that is nearly half of that.
Profitability will be the main concern. However, with the current valuation, you're getting a good price on the company continuing to deploy its technology, grow its backlog, and become a successful biogas company.
Kodiak Copper (TSXV:KDK)
Kodiak Copper (TSXV:KDK) is a newer player on this list of top Canadian penny stocks primarily because of the rising price of copper.
If you haven't been paying attention, copper prices have launched in a post-pandemic environment. Yes, it's coming back down to earth, but the last time we witnessed copper prices this high was in 2011. This company is essentially a copper pure-play, so it stands to benefit from this price increase.
In September 2020, resource giant Teck Resources invested $8 million into Kodiak Copper, showing strong signs of confidence and outlook for the junior exploration company moving forward. The company still generates no revenue and is primarily a play on its exploration efforts and asset base in British Columbia, Arizona, and Nunavut.
The company recently transitioned, as it changed its name from Dunnedin Ventures to Kodiak Copper at the start of 2020, and is probably one of the higher-risk plays on this list. However, there's always considerable potential in exploration companies in the very early stages. Just be wise, and invest with expendable capital.
Again, this one has no analysts covering forward growth and only a single analyst predicting its price level. And that one analyst has a 330% upside at the time of writing with a target price of $3.
Good Natured Products (TSEV:GDNP)
Good Natured Products (TSEV:GDNP) is a bioplastic company designing, producing, and distributing high-performance bioplastics for packaging and durable product applications.
The company has more than 350 products, which can be used at home, in restaurants, or a takeout setting. The company's primary goal is to reduce overall environmental impact. Its principal operating segments are in the United States and Canada.
It's no question that the ban on single-use plastics in Canada will give more attention to Good Natured, as it should. By 2050, there is a chance there will be more plastic in the ocean than fish.
Unlike many other companies on this list, Good Natured Products has been around for quite a while. The company started generating revenue in 2015. As of the last 12 months (at the time of writing), it has generated revenue above $70M.
Most analysts have target prices in the $0.7 range, signalling considerable upside.
Fobi AI (Formerly Loop Insights) (TSXV:FOBI)
Fobi AI (TSXV:FOBI) has dipped in value recently. Still, before this, the company had a market cap of just over $170 million. It now sits at just over $40M, firmly placing this company in penny stock territory.
Fobi AI recently changed its name from Loop Insights, which provides retail and marketing solutions for digital and physical landscapes. They're primarily situated in the AI sector.
The company's primary function is to enable brick-and-mortar companies to analyze critical customer data, including customer spending habits and trends.
The company works in the casino, sports, hospitality, retail, and education sectors. It has signed multiple critical contracts with some major players here in Canada, including Telus, Amazon and Shopify. Although the company just started generating revenue at the time of writing, this is still a company you'll want to keep a close eye on moving forward.
It's challenging to value this company right now, considering it has no significant revenue generation or earnings. And because of this, we can expect the company to be highly volatile around earnings time and on news releases like many Canadian penny stocks. There is a lot of speculation and forward earnings priced into Fobi's price right now, so we'd stress extreme caution if you're considering taking a position.
In terms of analysts, the company has virtually no coverage.
Poet Technologies (TSEV:PTK)
POET Technologies (TSEV:PTK), established in 1972 and headquartered in Toronto, operates within the optoelectronics sector and handles all aspects of the industry, including design, development, production, sales, and distribution.
The company provides integration services based on its innovative POET Optical Interposer. It integrates electronic and photonic devices onto a single module through state-of-the-art wafer-level techniques and packaging methods.
The product portfolio of POET includes solutions for Data Centers, Telecommunications, IoT & Industrial Sensing, Automotive LIDAR, and On-Board Optics. It primarily targets markets in Asia, the US, and Canada.
POET experienced a surge in popularity during the COVID-19 pandemic. However, its stock value has since returned to previous levels. With a market capitalization of $152 million, POET has been impacted by the current market environment, characterized by high-risk aversion.
Despite being pre-revenue, POET's lack of debt may provide a safety net in the face of rising interest rates. While it is not as high-risk as some other ventures, investing in pre-revenue companies is inherently volatile.
POET's stock performance mostly reflects the semiconductor market trend, and its future prospects in the rapidly growing cloud computing sector will offer ample growth opportunities.
One of our favourite Canadian penny stocks is Redishred Capital (TSXV:KUT), which owns and operates the Proshred brand.
Proshred has two business models – it owns mobile paper shredding trucks and franchises out locations to interested franchisees. The company has either corporate or franchised operations in 40 different U.S. cities.
The mobile paper shredding model has a few attractive advantages. It allows Redishred to acquire competitors and then rebrand them easily. It's more secure – and convenient -- than bringing documents to a central location. And the multi-city business model allows brand recognition in an industry that's currently very fragmented.
It can keep growing thanks to its strong balance sheet and minimal debt. Top managers are significant shareholders, which is ultimately a good sign.
And unlike many penny stocks, this company generates plenty of cash flow. Remember, this company has a share price of $3.85 and a market cap of just over $70 million. It doesn't take much to really move the bottom line.
Redishred is one of Canada's top penny stock picks because it's in a good sector with excellent growth potential. It's the kind of stock you'll want to stick in your portfolio and own for a long time.
However, as with any other penny stock, you'll want to keep a close eye on it in case anything changes.