Did you know that about 79% of the common stocks on the TSX are currently trading below $5? (as per this stock screener).
This should give you an idea of how many securities trade below what we consider penny stocks and how retail investors might limit themselves to only a fraction of good stocks.
But there are reasons to consider and disregard penny stocks as viable investments. I will help you understand both in this article, so you might be able to make more informed investment decisions.
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What Are Penny Stocks In Canada?
First, penny stocks can be stocks trading for more than $1. The term penny stocks to denote the stocks that traded for pennies (less than $1) would have made sense about a decade ago.
But thanks to inflation and its inverse relation to a dollar’s buying power, the definition doesn’t mean sense. So there is a new threshold (through common consent) of $5, and it also carries official weight, at least across the border.
There is no official definition of penny stocks in Canada or the TSX, so many financial experts have adopted the US Security Exchange Commission’s (SEC) definition, albeit with a change.
The SEC has set two criteria for penny stocks:
- Stocks that trade for $5 or less
- Stocks that are not listed on a national stock exchange
The second requirement is usually expanded to include stocks traded in an over-the-counter market (OTC). These markets offer less transparency and are less rigorously regulated, which makes it significantly more complicated for a retail investor to execute trades there successfully.
But this part of the definition doesn’t apply to Canadian investors since Canada doesn’t have an OTC. Canadian investors can choose to invest in OTC stocks traded across the border using Questrade.
But if you wish to invest in some of the best penny stocks in Canada, we have to limit the definition to the $5 part. This will give you access to the largest possible pool of penny stocks, and more choices mean a better shot of finding clear winners.
The Best Penny Stocks In Canada
An overview of some of the best penny stocks in Canada might give you a better idea of the companies behind penny stocks, what kind of businesses they are, and whether they should be defined by (and averted based on) their share price alone.
I tried to keep the selection diversified because sectors like metal, mining (materials), and energy might have more penny stocks than real estate or healthcare.
I’ve also taken into account things like the nature of the business, its long-term prospects, and the company’s relative position in its industry.
Also, note that you will find relatively few penny stocks worth considering when it comes to dividends, so it’s a good idea to focus on growth potential when it comes to most penny stocks.
1. Sangoma Technologies Stock (TSX)
- Ticker: STC.TO
- Sector: IT
- Industry Niche: Communication Technologies
- Forward Dividend Yield: N/A
- Market Cap: $108.18 Million
- Forward P/E Ratio: -33.5
- Average Analyst Rating: 1.7 - Buy
Sangoma Technologies is a Markham-based company that was founded in 1984. It provides communication technologies, primarily to its B2B clients. These technologies used to be PBX; now, it’s mainly about VoIP and cloud.
Sangoma has offered robust growth in the past, specifically between Nov 2015 and Feb 2021, when the stock rose about 19.8 times. It is a decent-sized player in a niche market with a comprehensive product line. And it’s also growing/evolving with the market.
The switch to cloud and VoIP is an attempt to meet the communication requirements of the new market. It has also expanded into other IT spaces and offers specific packaged solutions to its customers.
2. Hamilton Thorne Stock (TSXV)
- Ticker: HTL.V
- Sector: Healthcare
- Industry Niche: Laser Technology for Diagnostics
- Forward Dividend Yield: N/A
- Market Cap: $223.04 Million
- Forward P/E Ratio: 30.8
- Average Analyst Rating: 1.9 - Buy
Hamilton Thorne is another tech sector penny stock that you can invest in. It’s a US-based company focusing on precision laser and medical diagnostic tools that utilize these lasers. The company has a decent product range.
It is a robust grower, and one of the most potent growth runs for the stock has been between Sep 2016 and Nov 2021, when the stock grew by about 970%. It generates most of its revenue through the consumables of the instruments/ products it sells, which is a stable income stream.
A geographically diverse consumer base and distributors worldwide are another business strength and augment its leadership in a relatively niche market.
3. BTB REIT (TSX)
- Ticker: BTB-UN.TO
- Sector: Real Estate
- Industry Niche: Commercial REIT
- Forward Dividend Yield: 7.89%
- Dividend Payout Ratio: 65.22%
- Dividend Yield (12-Month Trailing): 8.75%
- Upcoming Dividend Date: Apr 17, 2023
- Market Cap: $297.84 Million
- Average Analyst Rating: 2.2 - Buy
BTB REIT is a commercial REIT that has been operating since 2005. It has a diversified portfolio of 76 industrial, office, and retail properties and a decent tenant base. It’s one of the few penny stocks that are great for dividends, as its yield is usually relatively high.
But the REIT is known to slash its payouts, so it’s essential to check the financials, especially the payout ratio when buying this penny stock for its dividends. One benefit of investing in this REIT is that it gives you exposure to a diversified commercial real estate portfolio.
Its capital appreciation potential is minimal though it may offer growth through recovery (after a fall).
4. Uranium Royalty Stock (TSXV)
- Ticker: URC.V
- Sector: Energy
- Industry Niche: Uranium royalties
- Forward Dividend Yield: N/A
- Market Cap: $275.07 Million
- Forward P/E Ratio: 27.6
- Average Analyst Rating: 1.5 - Strong Buy
Uranium Royalty, while not one of a kind, is certainly part of a small pool. It’s a pure-play uranium royalty company with interests in North America and Africa.
The company gives you exposure to uranium metal directly – a limited asset that is expected to remain relevant and profitable if uranium is used as the transition fuel to help the world convert from fossil to renewable.
It’s a relatively unique commodity investment and an excellent choice to diversify your commodities portfolio. The stock started trading on the venture capital market in 2019 and experienced exceptional 667% growth between Mar 2020 and Oct 2021.
5. Xebec Adsorption Stock (TSX)
- Ticker: XBC.TO
- Sector: Industrials
- Industry Niche: Gas Purification, Industrial Hydrogen and Nitrogen Generation
- Forward Dividend Yield: N/A
- Market Cap: $78.91 Million
- Forward P/E Ratio: -17
- Average Analyst Rating: 3.0 - Hold
Xebec Adsorption is a clean-tech solutions company. It provides systems and solutions for things like on-site hydrogen/nitrogen generation and gas purification, primarily to industrial clients.
It has been operating since 1967 and has installed its systems in several different countries across the globe. It also has a renewable gas division focusing on low-emission renewable gas generation.
The company will have more growth opportunities as the world switches rapidly to clean energy and industrial processes. Another major strength of the company is its global reach and clients in multiple countries.
The stock has offered powerful growth in the past, including an incredible 22,000% growth between Dec 2015 and Jan 2021.
6. POET Technologies Stock (TSXV)
- Ticker: PTK.V
- Sector: Tech
- Industry Niche: Photonics
- Forward Dividend Yield: N/A
- Market Cap: $200.56 Million
- Forward P/E Ratio: -6.79
POET technologies focus on optics and optics-based communication within electronic devices. The solutions it offers are used in data centers, telecom hardware, IoT devices, etc. The company has carved a strong place in a niche technology market.
Its proprietary edge of being the first company to achieve wafer-level integration for two different types of devices – electric and photonic, gives it an inherent advantage.
But many devices that use this tech may not become mainstream for quite some time. The stock has shown decent growth potential in the past, including a 330% jump between Sep 2019 and Feb 2021.
7. B2Gold Stock (TSX)
- Ticker: BTO.TO
- Sector: Materials
- Industry Niche: Gold Mining
- Forward Dividend Yield: 4.55%
- Dividend Payout Ratio: 66.67%
- Dividend Yield (12-Month Trailing): 3.11%
- Upcoming Dividend Date: Mar 17, 2023
- Market Cap: $5.61 Billion
- Forward P/E Ratio: 11.86
- Average Analyst Rating: 1.9 - Buy
B2Gold is another mid-cap stock on this list of penny stocks. It’s an “international, senior low-cost gold producer.” Three of its international mines (in Asia and Africa) are already producing gold, and two are in development. The company also has a few exploration projects in place.
It has a decent portfolio of properties and comes with the typical benefit of building a hedge within your portfolio against adverse market conditions. But unlike many other gold mining companies, B2Gold has also shown decent growth during solid market conditions.
It grew over 220% between Sep 2018 and July 2020. The company also pays dividends, and the yield is usually healthy enough.
8. Champion Iron Stock (TSX)
- Ticker: CIA.TO
- Sector: Materials
- Industry Niche: Iron Ore Mining
- Forward Dividend Yield: 2.95%
- Dividend Payout Ratio: 69.77%
- Dividend Yield (12-Month Trailing): 3.43%
- Upcoming Dividend Date: Nov 29, 2022
- Market Cap: $3.13 Billion
- Forward P/E Ratio: 7.12
- Average Analyst Rating: 2.2 - Buy
Gold is not the only useful metal you can invest in. Iron is usually a good bet, especially when construction projects around the globe keep the demand up. Champion Iron is a cross-listed Australian company with two flagship projects in Canada (both in Quebec).
Thanks to its listing in multiple markets, it’s open to three investor pools (Australia, the US, and Canada). It offers a good mix of dividends and growth, and the stock appreciated about 4,800% between Jan 2016 and Apr 2022. The company produces high-grade iron, which gives it an edge over its competitors.
9. American Lithium Stock (TSXV)
- Ticker: LI.V
- Sector: Materials
- Industry Niche: Lithium Production
- Forward Dividend Yield: N/A
- Market Cap: $683.77 Million
- Forward P/E Ratio: -32.5
- Average Analyst Rating: 1.7 - Buy
Lithium’s prospects as a metal started improving alongside the demand for batteries for both EVs and renewables (solar panels).
The demand fluctuates, but the pace at which EVs are entering the market and replacing fossil-based vehicles indicates that demand for lithium is rapidly growing, and lithium, along with other battery metals, is benefitting from this growth.
The company has two major lithium projects, one in the US and the other in Peru. The Peru project is on the world’s sixth largest hard-rock lithium deposit. It has also diversified into uranium (also in Peru). An exceptional growth run for the stock was between Nov 2019 and Nov 2021, when it rose over 6,400%.
10. Cloud MD Software Stock (TSXV)
- Ticker: DOC.V
- Sector: Tech
- Industry Niche: Digital Healthcare Platform
- Forward Dividend Yield: N/A
- Market Cap: $52.79 Million
- Forward P/E Ratio: 18
- Average Analyst Rating: 2.3 - Buy
Another tech stock has extensive growth opportunities as virtual health becomes more mainstream. The company focuses on digitizing healthcare delivery, like facilitating telemedicine.
This is a nascent segment of overlap between healthcare and tech, which saw a lot of advancement during the pandemic. The company is working on building a viable digital health ecosystem and connecting all the elements to its platform.
The network already has over 1,400 doctors and nurses and over 1,800 mental health professionals, capable of catering to over 12 million individuals. The best of the stock’s growth happened right after its inception – Over 440% appreciation between Jul 2020 and Oct 2020.
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11. Bitfarms (TSXV)
- Ticker: BITF.TO
- Sector: Tech
- Industry Niche: Crypto Mining
- Forward Dividend Yield: N/A
- Market Cap: $305.13 Million
- Average Analyst Rating: 2.0 - Buy
This highly volatile penny stock gives you exposure to one of the most volatile asset classes out there, i.e., crypto. This compounds the risk in three ways: It’s a penny stock, also a tech stock which tends to be relatively more volatile and focused on a highly volatile asset class.
Still, the potential is enormous. It gives you a great way to invest in crypto and take advantage of monstrous growth potential in registered tax-sheltered accounts (something you can’t do with crypto directly). This potential was reflected in its 3,600% growth between Oct 2020 and Nov 2021.
It has nine crypto mining “Farms” in four countries, and the hash rate (which is used to calculate mining power) is one of the highest among Canadian crypto miners.
12. FOBI AI stock (TSXV)
- Ticker: FOBI.V
- Sector: Tech
- Industry Niche: Data, AI
- Forward Dividend Yield: N/A
- Market Cap: $60.85 Million
FOBI AI has already proven its mettle as a growth stock. It’s a data intelligence company that allows businesses to gain better financial visibility and leverage personalized customer engagement techniques.
FOBI already has a service/product line that utilizes AI to generate tangible results and helps businesses improve customer relationships and retention numbers. The company (thanks to its technology focus) can thrive alongside rapidly growing e-commerce. But its core strength is its focus on data and AI, two of the most potent tech domains in the world.
However, it’s up against significantly larger competitors with decades of power and better tech behind their data and AI strategies (like IBM). One of the best examples of its growth potential was between Mar 2020 and Sep 2021, when it rose by about 4,900%.
13. OrganiGram Holdings Stock (TSX)
- Ticker: OGI.TO
- Sector: Healthcare
- Industry Niche: Marijuana
- Forward Dividend Yield: N/A
- Market Cap: $276.19 Million
- Forward P/E Ratio: -22
- Average Analyst Rating: 2.3 - Buy
OrganiGram is a prominent penny stock in the marijuana sector. It has a sizeable, tech-heavy indoor production facility, which offers them more control over the yield and quality of its products. It also has medicinal and recreational product lines, which gives it more room for growth as demand rises in the two domains.
It has eight major brands under its banner, each with its market presence and clientele. The stock’s potential is tied to the sector, which limits the probability of breaking out.
The positive side is that the stock may rise rapidly with the sector even if it has certain weaknesses. It’s capable of exceptional growth in the right market, and an example would be its 4,000% growth between Sep 2015 and May 2019.
14. NanoXplore Stock (TSX)
- Ticker: GRA.TO
- Sector: Materials
- Industry Niche: Graphene
- Forward Dividend Yield: N/A
- Market Cap: $445.82 Million
- Forward P/E Ratio: -134.5
- Average Analyst Rating: 1.9 - Buy
NanoXplore manufactures and supplies graphene powder and a few composite products. As one of the most versatile materials with impressive conductive and mechanical properties, graphene has a wide variety of existing and projected potential uses.
It’s one of the largest producers of graphene powder in the world and with an annual production capacity of 4,000 metric tons. This makes NanoXplore a strong graphene stock if you are interested in investing in this promising material. Batteries for EVs are already a primary focus of NanoXplore, which is a thriving market right now.
NanoXplore stock has seen multiple growth bouts since inception, and the most powerful ones were between Sep 2020 and Nov 2021, which resulted in 400% growth.
15. Real Brokerage Stock (TSX)
- Ticker: REAX.TO
- Sector: Real Estate
- Industry Niche: Real Estate Brokerage
- Forward Dividend Yield: N/A
- Market Cap: $293.35 Million
- Forward P/E Ratio: -20.38
- Average Analyst Rating: 1.5 - Strong Buy
Real Brokerage is one of the largest brokerage firms in the US and operates in about 42 states and two Canadian provinces. It has an impressive network of over 6,000 licensed brokers and is listed in both Canada and the US.
Publicly listed real estate brokerages are relatively rare, even in the US, which makes it a one-of-a-kind stock for Canadian investors. Its heavily US-facing business model prevents it from problems in the local housing market.
If you are looking for an alternative way to invest in real estate (apart from REITs), Real Brokerage can be a good choice, but it might not follow the sector’s typical patterns and may have unique challenges that even people familiar with real estate markets might not anticipate.
The stock has seen an impressive growth run between inception (Jul 2018) and Dec 2021 peak, which pushed it up 11,800%.
16. WELL Health Technologies Stock (TSX)
- Ticker: WELL.TO
- Sector: Healthcare
- Industry Niche: Digital Healthcare Solutions
- Forward Dividend Yield: N/A
- Market Cap: $1.09 Billion
- Forward P/E Ratio: 22.19
- Average Analyst Rating: 1.8 - Buy
WELL Health Technologies offer healthcare technology solutions and has a platform with an impressive reach – 21,000+ (from over 2,800 clinics) individual healthcare practitioners and about 2,100 medical professionals that are connected with WELL Health’s own clinics (83).
This gives the company more credibility, as it’s not purely a digital platform and knows the challenges and optimization techniques of digitizing a healthcare delivery system.
The stock has been through one major growth and a relatively smaller correction cycle since inception, and at its best, it rose by about 7,900% (between Apr 2016 and Feb 2021).
17. Lion Electric Stock (TSX)
- Ticker: LEV.TO
- Sector: Industrial
- Industry Niche: EVs and Other Solutions
- Forward Dividend Yield: N/A
- Market Cap: $563.63 Million
- Forward P/E Ratio: -9.11
- Average Analyst Rating: 2.7 - Hold
Lion Electric is one of the few EV companies in North America that are targeting mass transit solutions. In Lion Electric’s case, the most significant EV product is the three school buses it manufactures, though it also has two impressive cargo trucks and a minibus.
The class 6 and 8 urban trucks offer decent enough horsepower and torque, and the minibus offer between 75 to 150 miles per charge. What makes the company a slightly different investment from other EV companies, even the mass-transit ones, is its comprehensive family of solutions which includes charging infrastructure and telematics.
The stock has mostly gone down since inception, but a major shift in the mass-transit market (As they switch to EVs) can change that.
Honourable Mentions Of The Best Penny Stocks In Canada
For the list above, I tried to stick to penny stocks you can hold long-term in your portfolio without the fear of the company going out of business and your capital permanently sinking.
But if you have a healthier risk appetite and a bit of disposable investment capital, you can look into penny stocks that offer explosive growth potential (when the market conditions are just right).
Following is the list of some of the penny stocks that grew to powerful proportions post-pandemic and the returns you would have enjoyed if you bought and sold at precisely the right time, i.e., bought during the crash and sold at the post-pandemic recovery peak.
Drone Delivery Canada: About 260% growth between May 2020 and Feb 2021
Quisitive Technology Solutions: About 1,600% returns between Oct 2019 and May 2021
FP News Paper (Nano-cap stock): About 1,350% returns between Feb 2019 and Jul 2021
Fission Uranium: About 750% between Mar 2020 and Nov 2021
Gear Energy: About 1,700% between Mar 2020 and Mar 2022
Emerita Resources: About 12,800% between Mar 2020 and Nov 2021
These are just a few examples of the explosive potential penny stocks tend to offer. But you have to understand that it’s a biased, best-case scenario. Penny stocks can also help you lose money just as aggressively.
Penny Stocks vs. Nano/Micro-Cap Stocks
The term penny stocks are often used interchangeably with micro-cap (and sometimes, nano-cap) stocks. Sometimes, investors just confuse the two.
For penny stocks, the word “penny” refers to the price the stock is trading at. So it makes more sense to keep the definition of the stock limited to the price itself and not bring market capitalization into the mix.
Micro-cap stocks, on the other hand, are stocks whose market capitalization lies within a specific limit, i.e., $50 million to $300 million. Stocks with a market capitalization lower than $50 million are considered nano stocks.
Many stocks are both penny stocks (based on their price alone) and micro-cap or nano-cap (based on their market capitalization).
But if you consider being a micro-cap an essential requirement for penny stocks, you will drastically limit the pool of assets you can invest in. It will only be the overlap of the two. Therefore, we will stick with the less-than-$5 requirement for penny stocks.
TSX Stocks Under $1
Another misconception about penny stocks and their relationship to the major Canadian stock exchange (TSX) that some retail investors might have is that there are no TSX stocks under $1.
Or that TSX stocks that fall below $1 no longer trade on this exchange and are moved to junior exchanges, like TSX venture capital stock. But that’s not true.
Many significant companies sometimes see their share price dip below $1, but they are not kicked off from TSX.
However, it’s also true that there are relatively few TSX stocks under $1 (still over a hundred) compared to TSXV or NEO exchange.
The Pros And Cons Of Penny Stocks And A Few Suggestions
Everything has its pros and cons, and penny stocks are no exception. They are risky, and realistically speaking, their growth potential doesn’t usually offset the risks they come with. But either with extreme luck or a perfectly refined investing strategy (or a combination of both), you can get the best out of penny stocks.
Can You Get Rich Off Penny Stocks?
Yes. Penny stocks tend to offer explosive growth potential, and when the market conditions are right, they can help you grow your capital several times over in a matter of months.
So yes, if you invest at the right time, in the right penny stock, and exit at (or near) the peak, you can get quite rich and relatively fast. But that’s a lot of ifs that have to align just the right way to help you get rich with penny stocks.
Can You Go Broke By Investing In Penny Stocks?
Absolutely. If you invest an unhealthy portion of your investment capital in these penny stocks and don’t keep track of your portfolio to pull out of losing penny stocks as soon as their downhill motion is confirmed, you can easily lose a significant portion of your money.
Still, they are stocks and not options, so you can’t lose more than what you have invested in them, but the chances of a company behind a penny stock going out of business and your stake dropping to $0 are relatively high with penny stocks than others.
How To Safely Invest In The Best Penny Stocks In Canada?
The answer to this question would be different for different investors. If you are a long-term investor, you should look for penny stocks that are:
- Financially stable, have little to no debt, and a strong balance sheet.
- Offer relatively less explosive but consistent growth (ideally, over several years).
- From different sectors and market segments. Don’t concentrate too much on one sector (unless you understand the sector thoroughly and have a relevant strategy).
- When it comes to tech companies, time-tested products/solutions or innovations that are already gaining traction (like AI, cloud, blockchain, IoT, etc.) might offer more promising returns than long-shot technological innovations. The latter may or may not be groundbreaking.
- Ideally, have a decent position in a niche market with few or no major competitors (a tall order for sectors like materials and energy).
If you wish to leverage the short-term upside of penny stocks, you might look for market trends and sector-based trends. Many penny stocks tend to offer magnified returns when the sector (as a whole) is growing.
Energy stocks are exhibiting this phenomenon, and many tech sector penny stocks did the same right after the 2020 market crash (when tech led the stock market recovery).
These once-in-a-decade opportunities might be more suited for disposable investment capital than the hard-earned money you wish to grow for retirement.
One way to invest in penny stocks that I would recommend is to create a penny stock portfolio and keep it separate from your main portfolio. If you are risk-tolerant enough, you can divert just one-sixth of your TFSA portfolio (about $1,000 a year) into a risky penny stock portfolio.
Buy the best penny stocks in Canada and track the progress (for at least three to five years). Some oversized gains might help you balance out some massive losses.
If you believe your penny stock portfolio is adequately profitable, you can divert more amount to it. The reason for tracking penny stocks separately is that if you only invest a fraction of your total capital in them, their profits and losses might get lost in the number of more stable assets in your portfolio.
Conclusion
Penny stocks are exciting, risky, highly volatile, and extremely promising. You can mitigate these losses by finding financially stable, small-to-mid-cap penny stocks and taking advantage of their volatility by actively tracking (tracking, not trading) their progress and selling when the time is right instead of holding on to them for the long term.
Still, the risk is there, and if you don’t have the right amount of risk tolerance and investment acumen to tackle these murky waters, it’s better that you don’t jump in.Take a look at a complete list of the best stocks in Canada.