Top 10 ASX penny stocks for traders to watch in 2021

We explain the potential risks, rewards and everything else traders need to know about some of the ASX's most volatile and promising penny stocks for the year ahead.

What are penny stocks?

Penny stocks represent small, high risk and high reward opportunities for investors, speculators and traders.

As the name would suggest, penny stocks tend to be very small companies. While share price is important, it’s best to think of penny stocks in terms of market valuation. Generally speaking, to be considered a penny stock you’re looking at a company valued from between a few million to the upper-end of a billion..

Apart from being small, ASX penny stocks are often thinly traded, loss-making, considered speculative in nature, have limited analyst or no coverage, and as a result: are usually significantly riskier than their mid and large-cap counterparts.

With that in mind, investors should never invest more than they are willing (or able to lose) when trading penny stocks – or any stock or financial instrument for that matter!

Penny stocks are often interchangeably referred to as: micro-cap stocks, small-cap stocks, and nano-cap stocks.

In saying all this, spotting a winning penny stock early can provide significant rewards to patient and risk tolerant investors. The lack of analyst coverage and liquidity may prove especially fortuitous: spotting value where other investors are afraid to venture has proven a lucrative strategy for some of the world’s most famous investors.

For example, market darling a2 Milk (ASX: A2M) started its life as a penny stock – trading for just 56 cents in 2015. Yet as the company’s revenue and earnings rose – and as the broader opportunity in China’s IMF market became apparent to yield hungry investors – the company’s stock climbed in-step.

Of course, for every A2 success story, there are a string of failed ASX penny stocks that still trade for just pennies – or less.

Top 10 penny stocks on the ASX

Now that we have examined what exactly a penny stock is, we look at some of the ‘Top 10’ penny stocks that traders and investors should have on their watch lists in 2021.

Company

Ticker

Sector

BP Price target

Australis Oil & Gas Limited

ATS

Energy

$0.10

AMA Group

AMA

Consumer Cyclical

$1.00

Doctor Care Anywhere Group

DOC

Healthcare

$1.95

Oncosil Medical

OSL

Healthcare

$0.42

Australian Agricultural Company

AAC

Consumer Defensive

$1.45

Life360 Inc

360

Technology

$7.70

Laybuy Group Holdings

LBY

Technology

$3.00

Straker Translations

STG

Industrials

$2.10

Resimac Group

RMC

Financial Services

$2.50

City Chic Collective

CCX

Consumer Cyclical

$4.10

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Australis Oil & Gas Limited (ATS)

Australis is a small-cap energy player with significant ambitions. Despite touting a sub-$100 million market capitalisation, as the company states on its website, it has:

‘Accumulated a large strategic position within possibly the last delineated and appraised but undeveloped oil shale basins onshore in the USA, becoming the largest acreage holder in the production-defined core area of the Tuscaloosa Marine Shale.’

With energy prices proving volatile, investors shouldn’t be surprised that ATS has seen its share price fall close to 30% in CY20. Despite that short-term share price weakness, Bell Potter has a $0.10 price target and Speculative Buy rating on the company, implying strong potential upside from current price levels.

As per Australis Oil & Gas’s latest quarterly, the upstream gas and oil company reported:

  • Sales volume of 143,300 barrels
  • Field OPEX costs of US$12.57 per barrel
  • Earnings (EBITDA) of US$1.9 million
  • A cash balance of US$6.8 million, up 55%

AMA Group (AMA)

Self-described as a ‘leader in the Australian and New Zealand autobody repair industry and the vehicle aftercare and accessories market’ – the company has seen its share price skyrocket since bottoming out in March 2020, rising over 400% between March and January.

Justified or not, 2020 proved to be a strong year for the company, with AMA delivering Normalised earnings (EBITDAI) of $53 million in fiscal 2020, a result which was described as 'better than anticipated.’

The company did not declare a final dividend in FY20.

Doctor Care Anywhere Group (DOC)

Since listing on the ASX on 4 December 2020 there has been robust demand for Doctor Care Anywhere’s stock – with the share price up around 15% over the last month.

As the name suggests, Doctor Care is a telehealth company that offers customers a host of services, ranging from ‘GP appointments to medical support overseas.’

On December 22, 2020, the company announced a partnership with Allianz Partners that would embed 'Doctor Care Anywhere into their UK and European international private medical insurance policies' – allowing Allianz policy holders access to Doctor Care telehealth services.

This partnership, at least in part, likely explains the strong share price performance DOC has recorded over the short-term.

Oncosil Medical (OSL)

Oncosil describes itself as a med-tech company ‘focused on interventional medical techniques. We believe it’s time to change the conversation around some conditions with poor prognoses and transform the approach to their treatment.’

Despite the coronavirus pandemic impacting OSL’s operational performance, in October, the company revealed it had achieved its first commercial sale. Oncosil has failed to attract much positive shareholder attention, with the stock down around 20% -- between January to December.

Looking ahead however, the company positively said it was on-track for its first revenues during the fourth quarter of 2020.

Australian Agricultural Company (AAC)

As the company notes on its website: ‘AACo owns and operates Australia’s largest cattle herd with around 400,000 head spread over our properties across Queensland and the Northern Territory.’

Despite that lofty title, the company has seen its share price steadily decline over the last five years, falling around 15% in that period. That share price performance didn’t stop AAC from delivering a set of good first-half FY21 results.

Here the company saw meat sales improve on a price per kilo basis, while also delivering vastly improved operating profits ($23.5 million; $16.8 million ex-Jobkeeper) and operating cash flow ($22.3 million; 18.3). Despite that, AAC posted a net loss after tax of 1.7 million, an improvement, at least on the 14.1 million loss in H1 FY29,

Bell Potter has a target price of $1.45 on the Australian Agricultural Company.

Life360 Inc (360)

Life360 is a social network with a twist: its main target is families and its primary focus Saftey. Overall, its proven relatively successful thus far, with 360 recently reporting it had notched up 25 million active users per month.

The company has gained some traction from investors in the last year, with the stock up ~10% in the last year.

Breaking down the company’s latest third quarter (Q2 FY20) results, Life360 reported:

  • Revenue of US$20.2 million, up 24% on a year-over year basis
  • Global monthly active users rose to 25.8 million, up 4% on a year-over-year basis
  • Positive September quarter operating cash flow of US$1.0 million

Laybuy Group Holdings (LBY)

Since the initial hype of the September IPO has died down, the Laybuy share price has trended lower, at the time of writing trading just below the $1.30 per share mark. For reference, Laybuy touted an IPO offer price of $1.41 per share.

As with many others in the BNPL sector, the company has continued to notch up impressive operational growth, with LBY reporting that 'purchases made using LayBuy reached NZ$71 million in November 2020’ – representing an increase of 56%.

Elsewhere, the company said it recorded total GMV of NZ$61 million in November, while also seeing active merchants using the product rise by 19% and active customers grow by 14%, over October and November.

Bell Potter has a $3.00 price target on LBY and a Speculative warning.

Straker Translations (STG)

The translations services company saw its share price spike in November after announcing it had inked a strategic partnership with technology giant IBM. Under the two year agreement, the company said it would support a variety of IBM's services, including cloud, IBM's Adaptive Translational Services and the company's Global Media Localisation services.

Building on the momentum accrued from that partnership announcement, in late November 2020 Straker revealed its H1 2020 results, reporting:

  • Revenues of NZ$14.8 million, up 9%
  • Statutory gross margins of 51.1%
  • Adjusted earnings (EBITDA) of NZ$0.04 million, up from a loss during the prior year
  • Cash on hand of NZ$7.7 million

Bell Potter has a Speculative Buy rating and $2.10 price target on Straker.

Resimac Group (RMC)

With over 50,000 customers spread across Australia and New Zealand, Resimac occupies an interesting place in the financial landscape, operating as a 'non-bank' home loan lender. And despite the big four finding itself well out of favour with Australia’s investment community in 2020, the stock has risen firmly between 1 January to 1 December, gaining ~26% in that period.

In November, Resimac provided a trading update outlining its first-half FY21 guidance. Here, the non-bank said it expected to report first-half normalised profits (NPAT) of between $48-53 million – a result driven by 'low 30 day BBSW resets, disciplined cost control, and Assets Under Management growth.'

Elsewhere, the company reported that at October 31, 2020, its home loan Assets Under Management stood up $12.7 billion, while only 4.4% of its customers’ mortgages were in a state of deferral.

City Chic Collective (CCX)

2020 proved to be a volatile year for City Chic – beyond the pandemic. During the middle of the year much hype around the company centred on City's potential acquisition of Catherines' eCommerce assets. That acquisition ultimately fell through, a fact that disappointed investors, with the stock falling over 15% in response.

The company however pushed forward with other acquisition plans, in December 2020 announcing plans to acquire the UK-based brand Evans in a deal valued at AUD$41.0 million. The company described Evans as a 'leading UK plus-size brand' with a 'longstanding history' and strong market position.

'Evans gives us an excellent foundation in a new geography to growth our collective and is a brand which aligns with our existing product streams. The acquisition meets our strategic objective of growing through global customer acquisition, digitally, and in the $50 billion curvy apparel market,’ said City Chic’s MD and CEO, Phil Ryan.

At the time of writing and over the last year, CCX has gained ~36%.

How to identify and pick the best penny stocks in Australia

Regardless of whether you take a short or long-term approach to trading or investing, knowing how to identify and pick the ‘top’ ASX penny stocks has a number of key benefits. Here’s how to pick the top penny stocks in Australia:

  • Start by eliminating mid and large-cap companies. Any stocks with a market capitalisation below $1 billion is typically considered a penny stock.
  • Analyse the company’s share price history. Next, you want to see if a company’s share price is low because it’s a relatively young company – or if it’s an old company that has witnessed significant declines.
  • Examine the fundamentals: in line with the above point, is the company growing its revenues or are they declining? If the company is currently loss-making (as many ASX penny stocks are) read up on management commentary: is there a clear path to profitability? To growth?
  • Are there positive or negative macro conditions at play? For example, investors may potentially want to avoid penny stocks involved in out-of-favour industries, such as airline stocks. That’s not to say that out-of-favour sectors aren’t capable of providing investors with market-beating returns, only that it is often preferable to look for companies in sectors that are poised to grow – not decline.

How to buy and trade penny stocks in Australia

Now that you’re familiar with some of Australia’s most promising penny stocks and how to pick and identify them, below we look at how you can buy, sell and trade them for yourself.

How to buy ASX penny stocks

Whether you’re a trader, speculator or investor – buying and selling any of the ‘Top 10’ penny stocks we have discussed today can be easily done on IG’s proprietary trading platform. To start your buying journey today, simply:

  • Open a share trading account with IG
  • Log into the IG account and navigate to the ‘My IG dashboard’
  • Fund your newly created share trading account. Open the classic platform on the share trading account, go to the 'finder' panel on the platform, type in and select which growth stock you would like to buy
  • Click on the deal ticket: where the ‘on exchange’ option will appear. On exchange means interacting directly with the relevant exchange.

How to trade penny stocks in Australia

Besides buying the ‘Top 10’ ASX penny stocks we have discussed today, IG’s trading platform also gives more risk tolerant investors and traders the flexibility to go LONG and SHORT – utilising CFDs – to potentially capitalise on the underlying price movements of an asset.

Importantly, as a leveraged product, while CFDs give investors the chance to maximise their trading gains, it also gives them the chance to maximise their losses.

To begin trading penny stocks, simply:

  • Create an IG trading account or log in to your existing account
  • Look for the ASX penny stock you would like to take a short or long position in
  • Choose your position size
  • Click on ‘sell’ or ‘buy’ in the deal ticket
  • Confirm the trade

Penny stocks summed up

As we noted at the start: investing in ASX penny stocks can be an exhilarating experience. A great penny stock can help investors multiply their money many times over – far outpacing the gains an investor is likely to witness from a large-cap stock.

The likes of Afterpay (ASX: APT), Wisetech (ASX: WTC) and a2 Milk (A2M) come to mind when one thinks of ASX penny stocks that have successfully transitioned from obscurity into the limelight.

The risks and rewards of ASX penny stocks

Yet for every market darling that has made it to the top: there are a string of no-name failures. In some cases, investors lost some – or in extreme cases – all of their capital investing in penny stocks.

The line between going big or going bust seems most apparent in the micro-cap market.

As such, investors should take extra caution when investing in ASX penny stocks, thoroughly research any promising opportunities themselves, and never invest more than they are willing or able to lose.

Click here now to sign up for a Live Trading Account and begin your trading journey with IG today.

Not ready to start trading real stocks but still eager to get involved in the markets? Click here now to get access to $20,000 in virtual funds and practise trading ASX penny stocks with an IG Demo Account today.

Last updated : 2021-01-12T05:30:07+0000


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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