Trading and investing in penny stocks requires special skills attuned to unique price action at the low-end of the market’s value spectrum. The SEC defines penny stocks as stocks that trade for less than $5, so when trading penny stocks, aggressive risk management is needed because many of these low-priced equities have descended from much higher levels for good reasons that include declining earnings, sector headwinds, and accounting blow-ups. 

 

That said, not all low-priced stocks are bad. It’s a different story for up-and-coming companies listed at low prices on national exchanges because they often go public with limited revenues, but excellent growth potential, or at least a bullish story that will attract healthy speculation. Even so, there are no guarantees they’ll prosper in the competitive marketplace so aggressive risk management is needed to avoid significant or unexpected losses. While low-priced stocks are risky, they can produce handsome yields. Below are five penny stocks to watch this September.

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1. Birks Group Inc. (BGI)

Montreal-based Birks Group Inc. (BGI) sells jewelry and other luxury products through 26 retail outfits in Canada and the United States. This is an old company founded in 1879, but it just listed on the NYSE in 2006. A quick rally into 2007 posted an all-time high at 9.13, ahead of a steep plunge that finally came to rest at 20-cents in March 2009. A recovery wave into 2010 stalled above 2.00, yielding sideways action ahead of a successful test at the bear market low in February 2016.

The stock took off in a high volume rally after the company reported an unexpected profit in July, rising more than 300% in a single session and dropping into a consolidation pattern that just broke support at the .618 Fibonacci rally retracement at 2.20. On Balance Volume (OBV) indicates shareholders are hanging tough, raising odds for renewed buying interest when price nears the confluence of the rising 200-day exponential moving average(EMA) and .786 retracement at 1.42.

2. MGT Capital Investments Inc. (MGT)

MGT Capital Investments Inc. (MGT) develops mobile and online gaming technology. It came public in 2006 at 167 (post a 15 for 1 stock split in 2012) and entered an immediate downtrend that lasted for more than ten years, dropping the stock to 15-cents in January 2016. It ground sideways into May and took off in a vertical rally that added more than 5 points into a three-year high at 5.58.

A quick decline to 2.27 got bought, with that level offering support in the last three months. The sideways action has drawn the outline of a symmetrical triangle that could yield a fresh rally wave into double digits. The stock is now trading in the dead center of the pattern and needs to rally above the August 5 high at 3.74 to set a breakout into motion. A September 8 shareholder meeting could offer a catalyst for that buying wave.

3. Gold Standard Ventures Corp. (GSV)

Canadian junior miner, Gold Standard Ventures Corp. (GSV) ended a strong uptrend at 3.05 in May 2012 and entered a steep downtrend that finally ended at 26-cents in July 2015, well ahead of the December low posted by the gold futures contract. The subsequent uptick eased into a rising channel in November, with price gains continuing into July when dropped into a pullback that tested the 50-day EMA. Aggressive buyers emerged, lifting the stock 15-cents above the 2012 high, to 3.20 and its highest high since listing on the U.S. exchanges in 2010.

This level marks major resistance, predicting a consolidation period before a breakout drives the stock to much higher ground. Watch the rising 50-day EMA for buying interest just above 2.00, with that level now aligned closely with the August 10 gap between 1.96 and 2.06. It may take a gap fill to bring prospective shareholders off the sidelines.

4. Northern Dynasty Minerals Ltd. (NAK)

Northern Dynasty Minerals Ltd. (NAK), also based in Vancouver, Canada has been listed on the NYSE since October 2003, when it came public at 2.83. A rally into 2007 posted a top at 15.61, ahead of a steep decline during the 2008 to 2009 bear market. It bottomed out at 1.69, with the bounce finally reaching 2007 resistance in 2012, ahead of a breakout that posted an all-time high at 21.76 in 2011.

The subsequent downtrend may have finally ended at 20-cents in January 2016, with price action since that time carving an Elliott 5-wave pattern that’s lifted price to a two-year high at 1.16. It’s been pulling back for the last week and could drop as low as the 50-day EMA, currently rising from 61-cents, before gathering the buying interest needed to test the high and start the next leg of the trend advance.

5. TOP Ships, Inc. (TOPS)

Greek shipper, TOP Ships, Inc. (TOPS) has struggled since coming public on U.S. exchanges in 2004, posting four reverse splits that now set its first-day value at an astounding 14238. It entered a massive downtrend just four months after public listing, falling to an all-time low at 13-cents in January 2016. It ground sideways into February and went vertical, rising from 21-cents to 3.00 in a single session, after completing another reverse split.

A sideways pattern gave way to an early August breakout above the March high at 4.44, with the stock rising above 8 and then reversing sharply. It’s now filling the August 1 gap, which is located just under the breakout level at 4.44. The 50-day EMA is rising toward falling price and could provide the support needed to generate a strong bounce that sets the stage for a rally into double digits.

The Bottom Line

The low-priced, penny stock universe includes both beaten down entries and newly-minted start-ups hoping to become the next Microsoft Corp. (MSFT) or Alphabet Inc. (GOOGL). It's important to keep in mind that secondary offerings, warrants, and other financing games pose a significant risk with stocks under $5.00. Since low revenues force many of these companies to issue stock repeatedly or enter sweetheart deals with big investors, who will get paid before public investors when the company finally grows, and the stock’s valuation expands. (For tips on how to avoid being scammed, read: The Risks and Rewards of Penny Stocks). The most successful strategy at this end of the pricing spectrum treats each candidate according to its unique risk profile, taking extra care with new uptrends forced to navigate multiple resistance levels put into place by long downtrends. The above-mentioned stocks are key penny stocks to watch this fall.