Sunday, June 23, 2013 11:20 AM / Proshare Research / TheAnalyst
Choosing the right penny stocks remains a challenge because penny stocks are risky and investors stand a chance of losing their initial investment.
To buttress the above assertion, an analysis into price movements on the Nigerian bourse shows that investors’ patronage so far in the year was value driven as trading psychology suggests – a pointer to the high level of cautious trading (though with impressive optimism) in the last 5½ months.
This approach appears to have had an unimpressive impact on penny stocks (stocks trading below N5.00kobo) as investors appear to ONLY speculate on this class of equities for capital appreciation purposes only, choosing to dump same thereafter.
Thus far in 2013, we have not observed any sustained demand and accumulation of this class of equity(ies) as analysis reveal insignificant numbers changing status i.e. advancing above N5.00 (The benchmark price for penny stocks).
Further, a large quantum of this set of stocks recorded no price movements at all which has made their capitalisation stagnant. This could not be isolated from the high risk and volatility these stocks present to investors.
Apart from this, a lack of necessary and basic information on these set of stocks, and its low liquidity (marketability) act as a contributory factor to investors' posture towards them.
Nevertheless, a review of market trends suggests an increased chance of speculative trading in Q3’13, which further points to the possibility of a change in focus from investors (short termists) towards this class of assets.
This however does not suggest that the big capped stocks would not continue to record further patronage; they would, but the unavailability (low float) experienced by such stocks should encourage a shift in investors’ focus towards active penny stocks in the coming quarter.
As a result of this, we have looked into the performance of this class of assets so far in the year with intention of revealing the penny stocks among others that may attract investors’ patronage during the period of incoming possible speculation. Subsequent paragraphs and tables below put this in proper perspective.
Analysis revealed only three stocks that moved from penny class to higher class with impressive moderate price appreciation. Skye Bank Plc led this group to new level as indicated in the table I above.
On the other hand, analysis revealed one stock that slipped into penny stock class at end of the quarter one in the current year. EKOCORP represents the only stock that lost its position into penny status as indicated in the table II above.