It’s the height of summer vacation season, and the stock market is taking a breather after its major rally earlier in the year. For active traders, much of the excitement has moved to penny stocks, with many low-priced equities making huge moves in recent weeks.
Investors should avoid the urge to go plunging too aggressively into risky penny stocks in August, however. The summer doldrums can be dangerous if people don’t exercise prudence. In particular, with these penny stocks to avoid in August, the outlook seems bleak going forward. It’s time to sell these penny stocks while you can still get a reasonable price.
Yellow Corp (YELL)
Yellow (NASDAQ:YELL) has been one of the most popular penny stocks for August 2023. It’s also one of the worst for investors going forward.
That’s because Yellow’s common stock is not long for this world. That comes after the trucking company filed Chapter 11 bankruptcy to deal with its outsized debt load.
As a result of filing bankruptcy, the Nasdaq will be delisting YELL stock from its exchange soon. Once that happens, many brokerages will restrict trading in Yellow shares, and the price will likely slump. In the longer-term picture, the vast majority of companies that file bankruptcy see their common stock eventually hit zero and end up canceled.
There is a long-shot theory that Yellow shares might have some terminal value thanks to the company’s fleet. It’s possible but seems unlikely. Companies rarely file bankruptcy unless their obligations significantly exceed their assets. It’s time to sell YELL stock now while there is still an active market; otherwise, investors risk losing everything they put into it.
Bitfarms (NASDAQ:BITF) is a cryptocurrency mining company. In theory, the business aims to make money from mining Bitcoins (CCC:BTC-USD) at a relatively low cost and then reselling them at a higher price.
Like actual world mining, however, cryptocurrency mining has proven more difficult in practice than in theory. Relatively high costs for things such as graphics processing units and electricity have tended to make cryptocurrency production unprofitable for many operators.
That applies to Bitfarms as well. Last quarter, it generated $35 million in revenues, but it cost the company $42 million to produce the goods that led to that revenue. That’s a gross margin of negative 17%. Needless to say, if it takes $1.17 in input costs to make a dollar’s worth of merchandise, the business is going to struggle.
Supporters of the company can point to its lower cash costs of mining. But this overlooks costs such as depreciation which take a real bite; Bitcoin miners constantly have to buy new machinery to keep up their mining capacity as compared to peers.
As Bitfarms continues to lose money, it is selling additional stock to the public via an at-the-market (ATM) program to raise funds. That seems likely to persist given the relatively low price of Bitcoin and Bitfarms’ poor unit economics. All this makes BITF stock a clear sell going forward.
Rigetti Computing (RGTI)
Rigetti Computing (NASDAQ:RGTI) is a small technology company attempting to commercialize quantum computing applications.
RGTI stock emerged from a special purpose acquisition company (SPAC), and shares traded accordingly; from the opening price of $10, Rigetti dropped to below a dollar. However, Rigetti has been back on the upswing over the past couple of months; shares have grown more than 300% from May lows to their recent peak on August 1.
Much of that excitement was around the LK-99 phenomenon. Recently, Korean researchers presented a paper suggesting that they developed a superconductor that functioned at room temperature.
If true, that would allow many electronic functions to happen at a far lower cost than is achievable today. Rigetti’s method for achieving quantum computing involves superconductors that currently come at an exceedingly high cost. If LK-99 is verified, it could be a breakthrough for Rigetti’s commercial ambitions.
Unfortunately, it appears the LK-99 discovery isn’t going to pan out. Efforts to replicate LK-99 so far haven’t worked. The superconductor buzz is now rapidly fading. And with it, we should expect RGTI stock to sink like a stone.
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.
On the date of publication, Ian Bezek did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.