Penny stocks captivate investors with their low prices. The allure of controlling large numbers of shares for relatively very little money, and potentially generating explosive gains if their stocks move just a little bit higher, is a temptation too great to pass up for many.
However, the risks penny stocks carry are substantial. Penny stocks are prone to extreme volatility, limited liquidity, and manipulation through pump-and-dump schemes, often leading to significant losses. Many lack transparent financials, increasing the chance of investing in failing firms.
Yet, not every penny stock is a scam or doomed to bankruptcy. Some represent undervalued companies with strong fundamentals and growth potential. The following three penny stocks, trading under $5 — that’s the definition used by the SEC to classify a stock as a penny stock — are ones Wall Street is particularly bullish on, projecting 75% or more upside potential based on their promising trajectories.
This post originally appeared at 24/7 Wall St.