Gold bugs often tout stocks in their investment sphere as time-tested and beyond reproach. The general mantra is that there’s no other investment than gold, and that no portfolio should do without it. While holding gold as part of a diversified portfolio might be a prudent move on the part of investors, there is one other investment strategy that’s proving to be better than gold: Penny stock investments.
It behooves traders and investors to use a penny stocks list and monitor it carefully for opportunities to give portfolios a much-needed boost in returns.
The Thesis Explored
If you ask any gold investor to explain why they argue in favor of gold, they’ll likely point to the oversized (8% plus!) gains that gold, as highlighted by its proxy ETF SPDR Gold Trust (GLD), has delivered to investors. And that justification certainly holds true, especially when compared with traditionally “hot” sectors like Oil & Gas, Retail and Airlines. However, when you put gold head-to-head against penny stocks, the latter leaves the former eating its dust!
To explore this thesis further, we’ll look at real world data from some proxy investments instruments. First, we’ve already discussed GLD as a proxy for how gold has performed. To get a sense of how Penny Stocks performed, we’ll use the ETF iShares Micro-Cap ETF (IWC) as a proxy. Why this ETF? Because it approximates the performance of a broad basket of micro-cap stocks – the universe where most Penny Stocks reside. Because of these characteristics, both GLD and IWC make excellent candidates to evaluate their respective investment thesis.
So, what do we see?
Here’s a penny for your thought: Over a 1-year horizon, which covers a significant time period of the current pandemic crisis, IWC has delivered returns of 81% plus, while GLD is lagging way behind – barely holding on to 8.5% return. Penny-stalkers have outshone the metal that never loses its shine by more than 850%. And if that doesn’t convince investors to throw their lot in with Penny Stocks, perhaps a broader macro argument will.
Sealing the Deal
One might argue that, perhaps, there are better opportunities out there than investing in Penny stocks? Well, let’s explore that alternate thesis a bit more. If you look back at the earlier chart, you’ll see that the broader S&P-500 (SPY) has delivered just 50% of the returns compared to Penny Stocks. And while that’s half of what Penny investors received, it’s still more than 380% higher than Gold.
The conclusion of this analysis, therefore, is that while investing in a broad-based basket of stocks (S&P 500) would have delivered better returns than holding gold, the returns that Penny Stocks have delivered are astronomical – over 50% higher than owning the S&P outright, and 850% better than owning gold. If those numbers won’t seal the deal for Penny stock investments, perhaps nothing will!
Making Money Through Volatility
We’ve seen that holding Penny stocks for the long-haul has paid off for investors – more than 850% higher returns than gold. However, penny stocks come with higher volatility (ups and downs) – which offers a unique profit-making opportunity. Penny stocks do have greater volatility (greater Beta) than gold or the broader market. But that volatility is a trader’s friend.
A look at our chart above shows that penny stocks (as proxied by IWC above) offered more trading opportunities over the last 6 months (Sell = Green; Buy = Red underlines) than Gold. And that’s because of the volatility. Gold, on the other hand, has been largely flat over the analysis period, offering little opportunity to profit from buy/sell arbitrage.
Penny Sectors Worthy of Watching
Like any other investment strategy, Penny stock investing requires implementing a disciplined approach to make money. We’ve seen that micro-caps are a good universe to spot great penny stocks. Within that universe, Biotech companies, including names like Organicell Regenerative Medicine, Inc. (OTCMKTS: BPSR), offers a compelling investment thesis. Other names in that space include Biopharma Inc. (OTCPK: RGBP) and Biotech Products Services & Research Inc. (BPSR), all of which are great penny stocks to watch.
Well, let’s use iShares Nasdaq Biotechnology ETF (IBB) as a proxy for the biotech sector – which is largely micro-cap penny stock heavy. And let’s compare it against proxies for two traditionally “hot” sectors (financials, transportation) over a 10-year period (3600 days) to show. IBB is up 320% plus, while the others haven’t moved that way.
Bottom line: Pennies aren’t just good for quick short-term trades; they can be great trading opportunities over the long haul too.