6 Canadian Penny Stocks That May Take Off January 2023

If you’re looking for some of the hottest Canadian penny stocks on the stock market today, you’ve come to the right place. We’ve got 6 of the best penny stocks to be looking at in 2022. Continue reading to find out what they are!

What is the definition of a penny stock?

The definition of a penny stock is quite broad. You’ll get varying answers from different investors, but the general consensus is that a penny stock is a stock that trades below $5.

However, it’s important to note that a lot of popular stocks, ones that don’t have the volatility or market capitalization of a penny stock trade below $5. So here are a few more guidelines to help you narrow down your search:

• Penny stocks are typically smaller companies, and their shares are often illiquid (not easy to buy and sell)
• They have a small following, and typically are not covered by major analysts
• They usually trade OTC (over-the-counter, more on this later) or through pink sheets.

Canadians often confuse the term small-cap stock with penny stock. Unlike numerous small-cap stocks, you won’t find penny stocks trading on the Toronto Stock Exchange.

This is often because they are too small to meet the requirements needed to list on major North American exchanges, and don’t file the proper paperwork needed.

How do I buy penny stocks in Canada?

The first box you need to check off if you want to invest in penny stocks is the ability to handle significant volatility. If you don’t think you can stomach the risk, simply head to our how to buy stocks page to get started investing in the major exchanges.

What I like to tell investors looking to start trading the pink sheets, is to set aside an amount you would be completely comfortable losing. I wouldn’t recommend anyone invest their whole portfolio into penny stocks. But a designated amount, say 5% of your total portfolio, is completely reasonable.

Many of these penny stocks will not be long-term holds, as most will never come to fruition. You’ll look to trade based on the momentum of the stock itself and then exit accordingly. Once you’ve allocated some capital towards what I like to call “fun investing”, you’ll need a brokerage account.

If you already have one, you’re ahead of the game. If not, feel free to check out our Qtrade review. I utilize Qtrade myself and believe it to be the best platform in the country, hands down. In fact, the brokerage was named the top option in Canada for 2022, and I wholeheartedly agree.

One main benefit Qtrade has, especially when you’re buying penny stocks in Canada is the fact you don’t need to pay what they call ECN fees to execute a transaction. This can end up saving you a ton of money. In fact, when I was with Questrade, I paid as much as $50 per trade because of ECN fees.

Keep in mind, most brokerages charge more than their standard commission rates to buy penny stocks. This is simply due to the fact that the stocks are traded over-the-counter, which is a little bit different than processing a transaction on a normal exchange. So, make sure you understand what you’re paying before you pay it.

Is it bad to invest in penny stocks?

If you’ve developed the proper strategy no, it isn’t bad to invest in penny stocks.

Where people go wrong, is investing money that they simply can’t afford to lose, and in the end it puts them in a very difficult position both emotionally and financially.

Penny stocks are, in the end, a gamble. We don’t have enough fundamental research to form any sort of concrete conclusion about the company’s future. So, our opinion is that you should be purchasing penny stocks with money you would be completely comfortable taking to a casino.

As short-term investments, they require a large amount of monitoring as momentum and even a news event can cause extremely large movements in price.

Why are penny stocks so cheap?

Penny stocks are often companies that do not meet the requirements or have the funding to list on major exchanges. As such, they typically have low market capitalizations and less stringent requirements.

One requirement to list on major exchanges is a higher share price. With penny stocks, there is no minimum and as such, stocks can trade extremely cheap, sometimes in fractions of a penny. The key to judging a size of a company is not its share price however, but it’s market cap. This is a very important concept.

Can you get rich off penny stocks?

Most all penny stock newsletters and penny stock traders will tell you one thing, and that is that penny stocks is the path to riches. I’m here to tell you that it’s quite the opposite in fact.

It is possible to become rich investing in penny stocks yes. But, it’s very important you understand that for every success story, someone striking it rich and retiring early off a penny stock, there are a dozen, if not more, disasters of people risking way more than they were comfortable with and losing it all.

You are more likely to go broke than strike it rich with penny stocks. So, keep this in mind and invest in solid, blue-chip stocks with the majority of your portfolio and spend expendable capital on small companies like Canadian penny stocks.

Can you buy penny stocks on Wealthsimple?

Unfortunately with a brokerage like Wealthsimple Trade, you won’t be able to buy Canadian Penny stocks. Why?

Well, when companies aren’t listed on a normal exchange like the NYSE,NASDAQ or TSX, they are traded via a broker-dealer network. Transactions take place via a bulletin board (the OTCBB) and Pink Sheet listing services.

These broker-dealer networks communicate with each other and act as market makers. They will locate shares available for purchase or sale, along with negotiating a price for a fee.

Although most of the stocks trading over-the-counter cannot make it on the major exchanges due to regulations, they still need to meet requirements to trade OTC. It’s not only penny stocks that trade over-the-counter either. For example, companies may also issue bonds over-the-counter.

If you want to find a brokerage that will let you trade Canadian penny stocks, you’ll need to stick to one that deals with OTC transitions like Qtrade.

Tips when buying penny stocks

Before you get started, I’m going to drop you a few quick pointers you will need to be successful with buying penny stocks here in Canada. This is by no means a complete list, however I feel they are some of the most, if not the most important things you need to know so you don’t lose your money.

• When buying penny stocks, be aware that smaller sized entities may not be required to file documents with the Securities and Exchange Commission (SEC), something that bigger companies are required to do. This makes determining the financial health of a company nearly impossible, which is often why purchasing penny stocks is often thought of as nothing more than a gamble.
• In order to reduce your risk, try investing in companies listed on the OTCQX or OTCQB exchanges. These are essentially the top and middle tiers in terms of penny stocks, and companies listed on these exchanges will more than likely have accurate financial information and will file it in a timely manner. You could even go to a higher exchange like the TSX Venture Exchange, where reporting is even more stringent.
• If you’re looking for some of the highest returns, albeit highest risk, the OTC Pink is the lowest tier of penny stocks in terms of financial information provided. These stocks are the most volatile, so they bring with them highest potential profitability. Keep in mind though, the higher the reward, the higher the risk.
• There are a ton of penny stocks out there, and I would highly suggest using a screener to identify and narrow down your potential list of suitable companies.
• Knowledge in technical analysis is absolutely crucial when trading penny stocks. Because limited or inaccurate financial information is available to most investors, fundamental analysis almost plays no part in picking stocks. It can be something as simple as promoters featuring the company in a popular newsletter to send the price soaring.
• Analyze the management team. More than anything, they will be responsible for the inevitable failure or success of the company. With startups, in particular, there will be a lot of key decisions made by the management team that can make or break an over-the-counter company.

What penny stocks are hot in Canada right now?

• FP Newspapers (TSXV:FP)
• Kodiak Copper (TSXV:KDK)
• Namesilo Technologies (CSE:URL)
• Loop Insights (TSXV:MTRX)
• Athabasca Oil (TSX:ATH)
• Redishred (TSXV:KUT)

Speaking of terrible liquidity, you’ll want to be careful trading Canadian penny stock FP Newspapers (TSXV:FP) shares. The stock sometimes goes a whole day without trading and has average daily trading volume of just a few thousand shares.

However, there is no questioning the fact it’s been an outstanding addition to this list. Back when we originally highlighted FP Newspapers as a strong Canadian penny stock, it was trading in the 30 cent range. It’s now $1.19.

I’m the first to admit a company that owns 49% of the distributable cash of several newspapers in Manitoba – most notably The Winnipeg Free Press – doesn’t sound like a very exciting penny stock opportunity in 2022. But despite a run-up in price, it’s still insanely cheap.

At the time of writing, the company has earned around $0.12 over the last twelve months. Its shares trade at less than 10x this amount. Very few penny stocks these days are profitable, let alone trading for 10 times their earnings.

The stock could also pay a substantial dividend in a year or two once it starts to earn a little more money and it gets its balance sheet more under control. If this happens, you’ll be very happy you got in today.

Unfortunately, there is only 1 analyst covering the stock. So, there is no estimates for 2022 and beyond. However, that one analyst is very bullish on FP Newspapers, suggesting a 18-month target price of $4.50 a share. However, I’d take a target from a single analyst with a grain of salt.

Kodiak Copper (TSXV:KDK) is a newer player on this list of top Canadian penny stocks primarily because of the rising price of copper.

If you haven’t been paying attention, the price of copper has launched over the last while, nearly doubling off of pandemic lows. Yes, it’s coming back down to earth, but the last time we’ve witnessed copper prices this high was in 2011. Obviously, with this company being essentially a copper pure-play, it stands to benefit from this increase in price.

In fact, in September of 2020, resource giant Teck Resources invested $8 million into Kodiak Copper, showing strong signs of confidence and outlook for the junior exploration company moving forward. The company still generates no revenue and is largely a play on its exploration efforts and asset base which is located in British Columbia, Arizona, and Nunavut.

The company actually recently went through a transition, as it changed its name from Dunnedin Ventures to Kodiak Copper at the start of 2020, and is probably one of the higher risk plays on this list. However, there’s always large potential in exploration companies in the very early stages. Just be wise, and invest with expendable capital.

Again, this one has no analysts covering forward growth, and only a single analyst predicting its price level. And, that one analyst has 200% upside at the time of writing with a target price of $3.

Good Natured Products (TSE:GDNP) is a bioplastic company, engaged in the design, production, and distribution of high-performance bioplastics for use in packaging and durable product applications.

The company has a suite of more than 350 products, which can be used at home, in restaurants, or in a takeout setting. The company’s primary goal is to reduce overall environmental impact, and its main operating segments are in the United States and Canada.

Its no question that the ban on single-use plastics in Canada will give more attention to Good Natured, as it should. By 2050, there is a chance there will be more plastic in the ocean than there is fish.

Unlike many of the other companies on this list, Good Natured Products has been around for quite a while. In fact, the company started generating revenue in 2015, and as of the last 12 months (at the time of writing), it has generated revenue in excess of $79M.

The best part? It’s become popular enough that analysts have started to cover the company. They expect large-scale revenue growth over the next while, anticipating Good Natured Products could hit $127M in revenue in 2023.

Most analysts have target prices in the $1.30-$1.40 range, signaling some considerable upside.

Fobi AI (TSXV:MTRX) has dipped in value recently, but prior to this the company had a market cap of just over $170 million. It now sits at just over $34M million, firmly placing this company in penny stock territory.

Fobi AI, which recently changed its name from Loop Insights, provides retail and marketing solutions for digital and physical landscapes. They’re primarily situated in the AI sector, and the company’s primary function is to enable brick and mortar companies to analyze critical customer data, including customer spending habits and trends.

The company works in the casino, sports, hospitality, retail, and education sectors and has signed multiple critical contracts with some major players here in Canada, including Telus, Amazon and Shopify. Although the company just started generating revenue at the time of writing, this is still a company you’ll want to keep a close eye on moving forward.

As of right now, it’s very difficult to value this company considering it has no significant form of revenue generation or any sort of earnings. And because of this, we can expect the company to be, like many Canadian penny stocks, extremely volatile around earnings time and on news releases. There is a lot of speculation and forward earnings priced in to Loop’s price right now, so we’d stress extreme caution if you’re considering taking a position.

In terms of analysts, the company has virtually no coverage.

Athabasca Oil (TSX:ATH) was first placed on this list when it was worth about $0.22. So, if you had read this update in 2020, you’d have yourself a near 10-bagger right now as the stock has benefitted from a rising oil price and now sits in the $2.20 range.

The company has light oil production in both the Motney and Duvernay fields in Alberta Canada, as well as heavy oil production near Fort McMurray. The heavy oil assets have a long reserve life.

Athabasca projects it’ll start earning free cash flow in the next couple of years, but in the meantime, it’s forced to spend approximately $125 million each year on sustaining capital. It has cash on the balance sheet, but it must also contend with refinancing some US$450 million worth of debt coming due this year.

This is a company that could potentially benefit even further if oil maintains positive price momentum. After a rough 2020, the company has generated over $100M in free cash flow over the last twelve months at the time of writing.

One of our favorite Canadian penny stocks is Redishred Capital (TSXV:KUT), which owns and operates the Proshred brand.

Proshred has two separate business models – it both owns mobile paper shredding trucks and it franchises out locations to interested franchisees. The company has either corporate or franchised operations in 40 different U.S. cities.

The mobile paper shredding model has a few interesting advantages. It allows Redishred to easily acquire competitors and then rebrand them. It’s more secure – and convenient — than bringing documents to a central location. And the multi-city business model allows brand recognition in an industry that’s currently very fragmented.

It’s well poised to keep growing, thanks to its clean balance sheet and minimal debt. Top managers are major shareholders, which is ultimately a good sign.

And unlike many penny stocks, this company generates plenty of cash flow. Remember, this company has a share price of $0.71 and a market cap of just over $64 million. It doesn’t take much to really move the bottom line.

Redishred is one of our top penny stock picks in Canada because it’s in a good business with great growth potential. It’s the kind of stock you’ll want to stick in your portfolio and own for a very long time.

However as with any other penny stock, you’ll want to keep a close eye on it incase anything materially changes.