Best penny stocks for April 2021: what low-priced shares will bring you profits this spring?
20:16, 30 March 2021
The surge in retail investors with small trading accounts entering the stock market in the past year has prompted an increased interest in the best penny stocks to buy.
The US Securities and Exchange Commission (SEC) defines penny stocks, also known as low-priced securities or microcap stocks, as securities that are issued by companies with small market capitalisations of less than $250m to $300m. Penny stocks typically trade for less than $1, although the SEC includes stocks that trade at less than $5 per share.
As companies listed on the Nasdaq or New York Stock Exchange can be delisted if the share price falls below $1 for an extended period of time, many microcap stocks trade on the over-the-counter (OTC) market rather than exchanges. Quotes are available directly from a broker-dealer or on OTC systems.
Small-cap stocks have been outperforming larger stocks of late. The iShares Russell 2000 Small-Cap Index ETF (IWM), which tracks the performance of 2,000 US stocks with small market caps, climbed by 19.9 per cent in 2020, and has gained another 10.7 per cent year-to-date. That compares with a 4.45 per cent year-to date gain for the iShares Core S&P 500 ETF (IVV), which tracks the 500 largest US stocks and rose by 18.4 per cent in 2020.
Are you considering adding small-cap stocks to your investment portfolio? In this article, we look at some of the best penny stocks to invest in April 2021 to help you decide.
Best penny stocks for April 2021: targeting five high-growth sectors
Cryptocurrency mining, online clothing retailer, electric vehicles (EVs), telecom equipment, cannabis
Argo Blockchain (ARB)
UK-based cryptocurrency mining company Argo offers investors an alternative way to gain exposure to the Bitcoin price. The share price soared by 494.6 per cent in 2020 and is up by another 627.3 per cent year-to-date, trading around £2.40 per share, as BTC has rocketed.
On March 8, the company said that it had closed £26.8m in funding through the placement of 9.6 million new ordinary shares. It plans to invest £7.3m in cryptocurrency investment and advisory firm Pluto Digital Assets, using the rest for expansion of its mining capacity and general corporate purposes.
In February, Argo announced the installation of 4,500 new mining machines and on March 8, the company also revealed it completed the acquisition of DPN in the US, giving it 320 acres of land in Texas and 800MW of electricity supply to build a new 200MW mining facility over the next 12 months. The facility will provide the company with some of the lowest electricity prices in the world, the majority of which is from renewable sources.
Boohoo (BOO)
The UK-based online clothing retailer gained 15.6 per cent in 2020 to end the year at £3.43 per share. The stock is virtually unchanged year-to-date, as its peers on the UK high street have been hit by the impact of the Covid-19 pandemic on retail, with several well-known brands entering administration. However, Boohoo’s internet-based business model has allowed it to benefit from the accelerated shift towards online shopping. The company reported a 40 per cent year-on-year increase in revenue in the four months to December 31, 2020, with growth across all brands and geographies.
The company expects to report a 36-38 per cent increase in revenue for the financial year to February 28, 2021, up from its previous guidance of 28-32 per cent. Its medium-term guidance remains for 25 per cent annual sales growth and a 10 per cent adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.
On February 8, the business announced that it had agreed to acquire all of the online business and inventory of the Burton, Dorothy Perkins and Wallis brands, after their parent company Arcadia Group went into administration. The brands had more than 2 million active customers in 2020 and strengthens Boohoo’s position with over 15 brands across its platform, allowing it to reach a broader demographic.
Ideanomics
US-based Ideanomics is aiming to capitalise on two of the hottest trends on the stock market – electric vehicles (EVs) and fintech. The company operates a sales-to-financing-to-charging (S2F2C) business model for supplying commercial EVs to businesses and capitalises on the growing adoption of fintech services in the financial industry, including the use of blockchain.
The IDEX share price climbed by 151.9 per cent in 2020 as EV stocks rallied across the board, and it has gained a further 38.2 per cent so far in 2021 to trade around $2.75 per share, even as other EV stocks have retreated.
The company has been cutting its net loss and announced a $150m share offering in February. Sales are expected to continue growing this year as the adoption of EVs continues to take off. The firm generates free cash flow in excess of 10 per cent of sales thanks to strong margins, which have the potential to expand further in 2021.
Nokia (NOK)
The Norwegian telecom equipment company has become a favourite of retail investors on social media as a play on the transition to 5G telecom networks. Being on the list of our top five penny stocks to watch this spring, it gained 7.7 per cent in 2020 to $3.91 for its shares trading on the New York Stock Exchange, and spiked to $6.55 in late January before falling back to the $4 per share level.
The company’s performance so far in 5G has been disappointing in recent quarters, with fourth-quarter sales falling by 5 per cent as a decline in network deployment and planning services was partially offset by growth in 5G radio access products. However, the firm’s new chief executive officer Pekka Lundmark announced a new strategy in October to turn around the mobile networks business as a top priority for 2021, pledging to “invest whatever it takes to win in 5G”.
Covid-19 resulted in a net sales impact of approximately €200m in 2020, but the majority of the sales are expected to be shifted to future periods, rather than being lost.
Sundial Growers (SNDL)
Cannabis companies are among the hot penny stocks for April 2021 as governments in various countries consider amending regulations to legalise its use. Several popular cannabis stocks emerged from penny status in 2020 as investors piled into the sector in response to expectations of strong growth. Canadian firm Sundial is the latest target of investors on social media hoping to make large returns on a rise in the share price.
The stock went public in August 2019 at $13 per share and immediately dropped to $8 per share, sinking to $2.27 by the end of the year. By October 2020, the stock was trading at just $0.14. It has since gained 700 per cent to trade at $1.12 per share.
The company is transitioning from a wholesale model to retail to capitalise on the potential for growth in the industry.
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Small-cap stocks offer growth potential
Individual retail investors have been driving interest in some of the best penny shares and the latest round of US government stimulus is expected to see some of the money invested in growth stocks.
With the recent pullback in financial markets, “small-cap equities are reaching short-term oversold levels, falling just below the 50-day moving average,” noted Larry Adam, chief investment officer at Raymond James.
While penny stocks can generate massive returns for investors, it is worth noting that the Financial Industry Regulatory Authority (FINRA) warns investors to be cautious and carry out extensive research before buying penny stocks.
“Low-priced securities tend to be volatile and trade in low volumes. It may be difficult to find accurate information about them. There is a long history of bad actors exploiting these features to engage in fraudulent manipulations of low-priced securities. Frequently, these actors take advantage of trends and major events – such as the growth in cannabis-related businesses or the ongoing Covid-19 pandemic – to perpetrate the fraud.”
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CFDs provide the opportunity to capitalise on both bullish and bearish price fluctuations. You can either hold a long position, speculating that the share price of a chosen stock will rise, or a short position, speculating that it will fall.
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