Editor’s Note: This article is a part of our “If You Only Buy One Stock” series where we look at 2021’s most popular investing trends and have our top financial journalists make their very best pick. Click here to see more names for your must-buy list.
Penny stocks are all the rage these days, thanks to Robinhood and Reddit. Everyone’s looking for the next GameStop (NYSE:GME). GME stock was trading for less than $5 as recently as last August. In less than a year, GameStop skyrocketed to an all-time high of $483 in January.
If you were lucky enough to sell out at the high and bought last August, you came very near a 10,000% return.
Who wouldn’t want that kind of payday?
I’ve been tasked with finding the next great penny stock. Those stocks are priced below $5 and could be diamonds in the rough.
Who are they? Let me give you three possibilities. At the end, I’ll fill you in on which one of the three I would buy if I could only buy one.
Electrameccanica Vehicles (SOLO)
For those investors who haven’t heard about the Vancouver-based electric vehicle (EV) startup, Electrameccanica Vehicles’ (NASDAQ:SOLO) claim to fame is that it’s developed the ultimate commuter car for city dwellers.
It comes with a sticker price of just $18,500. That makes sense, given it only has three wheels, one seat, 82 horsepower, and 128 lb-ft of torque. It’s the little EV that could. Motortrend took it for a spin in February. While they weren’t impressed with the SOLO, they did say it had commercial applications.
“ElectraMeccanica doesn’t expect you, the consumer, to be its biggest buyer—instead, it’s banking on fleet sales. The company believes the Solo is the right size and price for businesses that need a small fleet of vehicles for courier services and food delivery,” Motortrend contributor Christian Seabaugh stated on Feb. 18.
It’s an interesting pivot that makes a lot more sense than trying to get consumers into a vehicle that the National Highway Traffic Safety Administration won’t test because it’s not considered a car.
I said as much last November. SOLO stock is only for really speculative investors.
Sundial Growers (SNDL)
If you’re asking me if Sundial Growers (NASDAQ:SNDL) is a cannabis stock I would buy, the answer’s a solid no. There are too many larger businesses that make sense to make a bet on than the Calgary-based cannabis producer.
That said, this is a story about penny stocks. Trading at 84 cents as I write this, it definitely qualifies. The question is whether it’s got a plan that can take it beyond its penny-stock status to GameStop greatness.
Earlier in April, I wrote a piece that argued SNDL stock is not a Reddit stock that’s ready to benefit from a short squeeze, despite the fact it gets a lot of chatter from the Reddit crowd.
There is no question that the company’s actions to clean up its balance sheet and its plan to focus on its branded products should help it get out from under its sub-$1 share price.
Where it goes after that really depends on whether it can grow its revenues beyond 100 million CAD ($80.1 million) — it had 60.9 million CAD ($48.8 million) in fiscal 2020 — if it stays the course, I think it can.
If there’s a penny stock doing more for animals than Zomedica (NYSEAMERICAN:ZOM), I’d love to hear about it.
In March, I wrote that speculative investors were getting an excellent long-term buy in the maker of the Truforma diagnostic platform for dogs and cats. Its point-of-care diagnostic tool for thyroid testing — it has more than 70 patents issued or pending — is bound to save the lives of companion animals everywhere.
The most exciting part of my article discussed how the company was able to launch Truforma two weeks early.
“As speculative stocks go, Zomedica’s become one of my favorites. If you can afford to lose 100% of your investment, it’s a long-term buy,” I wrote on March 22.
The previous month, I said if you were an aggressive investor, ZOM stock was a steal. It was trading around $2.25. It’s now under $1.
The big momentum killer?
Zomedica announced on April 15 that it was expanding its direct sales organization and phasing out its distributor-based sales efforts.
“As TRUFORMA®’s market presence grew, we intended to transition from a distributor-based sales model to a direct sales organization,” CEO Robert Cohen stated.
“However, due to anticipated changes at our current distributor that we believe have impacted its ability to market our products effectively, we will be accelerating that transition and the building of a direct sales organization.”
Investors didn’t like what they heard. As a result, the slide ZOM stock had been on for the previous month continued unabated until it bottomed around 76 cents on April 20.
What’s weird about the investor reaction is that Zomedica already has eight direct field sales personnel and two regional managers marketing Truforma. So, the hiccup from the distributor merely accelerated its need to go direct.
As an animal owner, I appreciate that sentiment.
In February, Zomedica raised $173.5 million in a bought deal at $1.90 a share. The exercise of the over-allotment raised an additional $26 million. It has the funds to build out its sales force.
I, for one, believe it’s a fortunate break that could set it up for significant future success.
For this reason, ZOM stock is the penny stock I would buy if I could only buy one.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.