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July 8, 2020

Canadian Penny Stocks – 5 Dirt Cheap Stocks Today

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dan Kent

July 8, 2020

If you’re looking for some of the hottest Canadian penny stocks on the market today, you’ve come to the right place. We’ve got 5 of the best penny stocks to be looking at in 2020. 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, but the general 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 is 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 TSX.

This is often because they are too small to meet the requirements needed to list on major exchanges, and don’t file the proper paperwork needed.

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 don’t think you can stomach the risk, simply head to our how to buy stocks page to get started investing in the major exchanges.

What I like to tell investors looking to start trading the pink sheets, is to set aside an amount you would be completely comfortable losing. I wouldn’t recommend anyone invest their whole portfolio into penny stocks. But a designated amount, say 10% of your total portfolio, is completely reasonable.

Once you’ve allocated some capital towards what I like to 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 Questrade review. In my opinion, they are the best brokerage to start with if you’re looking to invest in penny stocks.

Take advantage of our exclusive offer for $50 in free trades with Questrade today. Or if you’re looking for other brokerage options, trading pedia has reviewed a few smaller ones.

Keep in mind, most brokerages charge more than their standard commission rates to buy penny stocks.

This is simply due to the fact that the stocks are traded over-the-counter, which is a little bit different than processing a transaction on a normal exchange.

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?

Well, when companies aren’t listed on a normal exchange like the NYSE,NASDAQ or TSX, they are traded via a broker-dealer network. Transactions take place 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, along with negotiate a price for a fee.

Although most of the 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 that will let you trade Canadian penny stocks, you’ll need to stick to one that deals with OTC transitions like Questrade.

Tips when buying penny stocks

Before you get started, I’m going to drop you a few quick pointers you will need to be successful with buying penny stocks here in Canada. This is by no means a complete list, however I feel 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 that bigger companies are required to do. This makes determining the financial health of a company nearly impossible, which is often why purchasing penny stocks is often thought of as nothing more than a gamble.
  • In order to reduce your risk, try investing in companies listed on the OTCQX or OTCQB exchanges. These are essentially the top and middle tiers in terms of penny stocks, and companies listed on these exchanges will more than likely have accurate financial information, and will file it in a timely manner.
  • If you’re looking for some of the highest returns, albeit highest risk, the OTC Pink is the lowest tier of penny stocks in terms of financial information provided. These stocks are the most volatile, so they bring with them highest potential profitability. Keep in mind though, the higher the reward, the higher the risk.
  • There are a ton of penny stocks out there, and I would highly suggest using a screener to identify and narrow down your potential list of suitable companies.
  • Knowledge in technical analysis is absolutely 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.
  • 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 key decisions made by the management team that can make or break an over-the-counter company.

What penny stocks are hot in Canada right now?

5. Namesilo Technologies (CSE:URL)

Top Canadian Penny stocks - Namesilo

 

Namesilo Technologies (CSE:URL) is an internet services company in Canada that registers domain names, provides hosting, offers email services, and provides various other needs for the owners of websites.

In 2020, having your own website is imperative. Customers don’t bother picking up the phone if they have a question or concern; they’re just going to go straight to your website. If you don’t have a digital advertising strategy, good luck.

Namesilo is delivering blistering growth of late, more than doubling its top line on a year-over-year basis during 2019. Net income before taxes, meanwhile, grew more than 1,000% compared to the same period last year. Profit margins expanded as well, and the company reported strong customer retention rates.

The question is whether Namesilo can continue its blistering growth. It should benefit from new businesses (and individuals) becoming serious about building an online presence, as well as taking customers from competitors. Its focus on giving great deals and providing excellent service is a winning combination.

And at just $0.24 per share, Namesilo certainly qualifies as a penny stock. The stock only has a market cap of just under $5 million, so big-time investors might struggle with its lack of liquidity.

4. FP Newspapers (TSXV:FP)

Hot Penny Stocks On The TSX - FP Newspapers

Speaking of terrible liquidity, you’ll want to be careful trading Canadian penny stock FP Newspapers (TSXV:FP) shares. This $0.22 stock sometimes goes a whole day without trading and has average daily trading volume of just a few thousand shares.

I’m the first to admit a company that owns 49% of the distributable cash of several newspapers in Manitoba – most notably The Winnipeg Free Press – doesn’t sound like a very exciting penny stock opportunity in 2020. But this stock is insanely cheap, and it seems to be turning a corner.

It earned approximately $0.15 per share in 2019, while shares trade for just 1.5x that much. It’ll get a nice journalism tax break from the Canadian government in 2020, too.

It also could sell its headquarters in Winnipeg for a nice gain as well. Shares could see another boost when an important loan gets extended.

The stock could also pay a substantial dividend in a year or two once it starts to earn a little more money and it gets its balance sheet more under control. If this happens, you’ll be very happy you got in today.

3. Athabasca Oil (TSX:ATH)

Canadian Penny Stocks - Athabasca Oil

 

Athabasca Oil (TSX:ATH) is a classic penny stock conundrum. It has huge upside potential, but there’s also a real possibility the company could go bankrupt. It’s almost like flipping a coin, except if you win, you’ll likely do far better than just doubling your money.

The company has light oil production in both the Motney and Duvernay fields in Alberta Canada, as well as heavy oil production near Fort McMurray. The heavy oil assets have a long reserve life, but the company isn’t making much from any of its production because of low oil prices.

Athabasca projects it’ll start earning free cash flow in the next couple of years, but in the meantime, it’s forced to spend approximately $125 million each year on sustaining capital. It has cash on the balance sheet, but it must also contend with refinancing some US$450 million worth of debt coming due in 2022.

You could make a lot of money if oil recovers and Athabasca Oil shares shoot higher. But this $0.18 stock is cheap for a reason. You’re taking some significant risk buying today, especially with the demand in oil plummeting due to COVID-19.

2. Score Media and Gaming (TSXV:SCR)

Best Penny Stocks On The TSX - The Score

If you’re old, like me, you might know the Canadian sports channel The Score, the upstart competitor that couldn’t afford the rights for any major sports. So, it showed a lot of poker, wrestling, and highlight shows.

When the channel was sold to Bell Media, the company retained its digital assets. What was once just a website has been transformed into one of the top sports apps in North America. Approximately four million people regularly check scores, read stories, and, thanks to a shift in business model, can now potentially gamble on the app.

Score’s management team is extremely excited about the opportunity online gambling represents. It has licences to operate in Colorado and New Jersey, and it has secured a partnership with the NBA to use the league’s property on its sports betting app. That’s just the beginning.

The company still isn’t profitable on a regular basis, but it’s flush with cash after a $40 million investment from a wealthy backer. As long as its gambling revenue keeps growing, losses won’t matter.

1. Redishred (TSXV:KUT)

Top Canadian Penny Stocks - Redishred

My favorite Canadian penny stock is Redishred Capital (TSXV:KUT), which owns and operates the Proshred brand.

Proshred has two separate business models – it both owns mobile paper shredding trucks and it 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 interesting advantages. It allows Redishred to easily acquire competitors and then rebrand them. 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’s well poised to keep growing, thanks to its clean balance sheet with almost zero debt. Top managers are major shareholders with an ownership stake of more than 40% of the company.

And unlike many penny stocks, this company generates plenty of cash flow. Remember, this company has a share price of $0.51 and a market cap of just over $40 million. It doesn’t take much to really move the bottom line.

Redishred is our top penny stock pick in Canada because it’s in a good business with great growth potential. It’s the kind of stock you’ll want to stick in your portfolio and own for a very long time.

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Dan Kent


An active dividend and growth investor, Dan has been involved with the website since its inception. Dan is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. Dan manages his TFSA, RRSPs and a LIRA at Questrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.

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