Among the thousands of names in “penny stock territory” (stocks trading for $5 per share or less), there may be a handful where the potential rewards outweigh high volatility and risk. However, against this small group of strong opportunities are scores and scores of penny stocks to avoid.
Interestingly, many of the top names you should avoid are this category’s largest, most heavily traded stocks. They lack what they have in name recognition in fundamentals or promising future prospects.
As you may have guessed, a good amount of these high-profile but low-quality penny stocks have or are currently popular with the meme stock community. Meme stocks may be in the midst of another wave of popularity right now, yet when this latest “meme wave” fades, expect the penny meme stocks bid up during this wave to come crashing back to Earth.
The following seven stocks fit well into the “penny stocks to avoid” category. Let’s dive in and see why each is a “stay away” situation.
Blackberry (BB)
Blackberry (NYSE:BB) shares have sporadically become popular with some investors as a speculative meme trade in recent years. During the latest “meme wave,” BB experienced a brief, moderately-high move higher but quickly coughed back these gains.
More importantly, while BB stock has been temporarily bid up higher on several occasions, shares in this former smartphone maker have been steadily falling to lower and lower prices. The company’s efforts to become a cybersecurity and Internet of Things (IoT) company have not made Blackberry a profitable enterprise.
Blackberry has had some positive news recently, such as stronger-than-expected quarterly results. The company is also engaging in aggressive cost-cutting efforts. Still, as sell-side forecasts call for annual net losses to persist through at least 2026, it appears more likely that poor fundamentals will continue to weigh on BB’s performance.
Hudson Pacific Properties (HPP)
Previously, I highlighted Hudson Pacific Properties (NYSE:HPP) as one of the real estate investment trusts (REITs) to avoid. Still, with shares in this California-focused diversified REIT falling below $5 per share, it’s also become one of the penny stocks to avoid.
Admittedly, the issue that made me bearish about HPP stock in the first place has long since entered the rearview mirror. That would be last year’s Hollywood labor union strikes. These strikes put film and TV production on hiatus, impacting Hudson Pacific’s studio space portfolio rental income.
However, other issues for the REIT, such as declining demand for its portfolio of office properties, remain. As Seeking Alpha commentator Trapping Value recently pointed out, HPP’s office occupancy rate continues to drift lower. Lower occupancy means lower rental income. This bodes badly for common shareholders as debt maturities are approaching.
Hertz Global Holdings (HTZ)
In 2021, Hertz Global Holdings (NASDAQ:HTZ) exited Chapter 11 bankruptcy in a rare scenario where common shareholders walked away, still owning equity in the business. Yet while the famed rent-a-car operator capitalized on the “revenge travel” trend immediately after the 2020 Covid-19 lockdowns, Hertz is hurting once again.
The company is contending with higher interest rates and faster-than-expected depreciation for its fleet of EVs. Hence, it’s not a case of investors overreacting to steep declines in HTZ stock over the past year. Shares are down by over 75% during this time frame.
Hertz Global Holdings stock has fallen by nearly 20% in the last month alone. Dip-buyers may be jumping back in, but even if there’s a chance history repeats itself, it’s likely far too early to make this wager. In the meantime, further bad news will likely push HTZ to lower prices even more.
Lucid Group (LCID)
You don’t have to look too deep into the situation with Lucid Group (NASDAQ:LCID) to see why shares in the EV maker have become one of the penny stocks to avoid. Lackluster sales and high cash burn have pushed former top contenders in the electric vehicle space to rock bottom prices.
However, think again if you’re considering buying LCID stock as an asymmetric wager. Even at less than $3 per share, downside risk vastly exceeds potential upside. Essentially, because Lucid Group is caught in a dilution spiral. As Louis Navellier and the InvestorPlace Research Staff discussed last month, the company continues to survive, thanks to dilutive cash infusions from its majority shareholder, Saudi Arabia’s Public Investment Fund (PIF).
As PIF continues to purchase newly issued LCID shares, and Lucid keeps burning through cash, with little likelihood of reaching profitability in the near future, this stock will continue to lose value.
Nikola (NKLA)
It may seem too late to say “stay away” regarding Nikola (NASDAQ:NKLA). Shares in this electric truck maker now trade for just $0.50. That’s a far cry from the more than $65 per share the stock fetched during the height of “EV stock mania” in 2021.
However, even at rock-bottom prices, NKLA stock is likely to continue losing value, for the very same reason fellow “EV also-ran” LCID is likely to continue losing value. Nikola’s operating performance remains disappointing. Last quarter, the company delivered just 40 vehicles. Sales came in at less than half of forecasts, although losses were slightly higher than expected.
Further shareholder dilution is likely for Nikola. With just $345.6 million in cash on hand as of March 31, 2024, based on cash burn, the need for a further capital infusion is likely just a few quarters away.
Plug Power (PLUG)
Recently, I dived into the latest with Plug Power (NASDAQ:PLUG), a hydrogen energy play whose popularity has diminished considerably since renewable energy, aka “green wave stocks,” was all the rage three years ago.
PLUG stock is one of the penny stocks to avoid for two reasons. First, the latest news regarding its obtaining of a $1.66 billion U.S. Department of Energy loan guarantee for its “green hydrogen” projects may not be as game-changing as headlines suggest. Second, the results of the upcoming U.S. Presidential election later this year could affect future growth and financing opportunities.
If this doesn’t scare you off, consider that there’s little faith in a comeback among the “smart money” and insiders. Short interest for PLUG remains high, at 28.2% of outstanding float. Recent insider transactions have consisted entirely of insider selling and options exercising, with zero insider buying.
Peloton Interactive (PTON)
Peloton Interactive (NASDAQ:PTON) is another fallen angel among the penny stocks that are bona fide “stay away” situations. As you likely know, shares in this home fitness technology company have experienced one of the hardest post-Covid hangovers.
At once, PTON stock traded for above $150 per share, while today, it trades for around $3.50 per share. Chatter about a possible private equity takeover never passed the rumor stage. The only true catalyst in motion is Peloton’s last-ditch turnaround plan.
This turnaround includes what management calls a “holistic refinancing,” along with aggressive cost cutting through layoffs. These moves may help to keep the exercise bikes spinning, but analyst forecasts still call for net losses to continue over the next few years. Barring a surprise swing to profitability or perhaps the sale of Peloton to a strategic acquirer, it’s hard to see this pandemic-era darling make a stunning recovery.
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, Thomas Niel 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.