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Top 10 ASX penny stocks for traders to watch

A brief examination of ASX penny stocks, their advantages and drawbacks, and a rundown of 10 of the best penny stocks to watch as of March 2023.

Source: Bloomberg

ASX penny stocks: what you need to know

Penny stock investing requires a high degree of due diligence, as they represent smaller propositions that usually come with a far higher risk-to-reward ratio.

In the UK, a penny stock is defined as any share worth less than £1 each. In the US it’s any under US$5 (circa AUD$7).

In Australia, many classify penny stocks as those under one Australian dollar per share, while some use the definition loosely to describe any company with smaller share prices.

It’s also worth noting that penny stocks can have high-value market caps if large numbers of shares have been issued.

  1. Minrex Resources (ASX:MRR)
  2. Castle Minerals (ASX:CDT)
  3. E2 Metals Limited (ASX: E2M)
  4. Pancontinental Oil & Gas N.L. (ASX: PCL)
  5. Bubs Australia (ASX:BUB)
  6. Tesserent Limited (ASX: TNT)
  7. Vection Technologies Ltd (ASX: VR1)
  8. Argosy Minerals (ASX:AGY)
  9. King River Resources Ltd (ASX: KRR)
  10. Gibb River Diamonds (ASX:GIB)

1. MinRex Resources (ASX: MRR)

MinRex Resources Limited was founded in 2011 and is a mining company that focuses on the exploration and development of battery metals. The company has lithium-tin-tantalum Projects in the world-renowned mineral region of the Pilbara in Western Australia.

MinRex may have considerable growth potential, given the increasing uptake of electric vehicles around the world that will drive global demand for battery metals.

In addition to its lithium projects, Minrex also has a highly prospective portfolio of gold-copper projects in both Western Australia and New South Wales.

2. Castle Minerals (ASX:CDT)

Castle Minerals is a mining company with multiple exploration and development projects across Western Australia and the African nation of Ghana.

A key focus of the company is gold, with projects at Beasley Creek, Success Dome, Polelle and Wanganui in Western Australia and at Carlie Mining in Ghana.

Castle Minerals also has zinc, lithium and graphite projects across Western Australia.

3. E2 Metals Limited (ASX: E2M)

E2 is a mining exploration company with a focus on gold and silver deposits in Australia and New Zealand . The company's main project is the Conserrat Project in Argentina, which has shown high-grade gold and silver mineralization potential.

The company recently concluded a deal with Austral Gold that saw it acquire full ownership of the Pinguino silver-gold-zinc-lead-indium project in Santa Cruz, Argentina via the purchase of a 100% stake in SCRN Properties Limited for a consideration of $10 million.

Part of this consideration will be paid in 49.7 million shares in E2, comprising 19.99% of ownership in E2 and making Austral Gold the biggest shareholder in the company.

4. Pancontinental Oil & Gas N.L. (ASX: PCL)

As is evident from its name, Pancontinental is an oil and gas exploration and production company that focuses on assets in the African continent and Australia. The company holds exploration licenses in Namibia, Kenya, and Australia.

Pancontinental shares could receive a boost from the ongoing conflict on Ukraine in 2023, which has put pressure on global energy markets by constraining Russian supply.

5. Bubs Australia (ASX:BUB)

Baby formula company Bubs Australia touts its use of high-quality ingredients sourced from organic suppliers and growers as a key reason behind its status as a premium brand.

The company has won international accolades for product quality, including a Purity Award from the Clean Label Project in the US for ingredient quality and a First 1,000 Days Promise award for compliance with EU baby food regulations.

6. Tesserent Limited (ASX: TNT)

Tesserent is a cybersecurity company that provides a range of cybersecurity services to businesses in Australia and New Zealand. The company's services include threat intelligence, network security, and compliance and governance.

Tesserent has some of Australia's top security experts at its disposal, having recently appointed Anthony Sheehan, the former Deputy Director-General with the Australian Security Intelligence Organisation (ASIO), as a non-executive director.

7. Vection Technologies Ltd (ASX: VR1)

Vection is a software company that develops virtual and augmented reality solutions for businesses. The company's products include real-time 3D rendering software, virtual and augmented reality platforms, and training and simulation solutions.

Vection recently obtained several patents across the US and Europe related to its INTEGRATEDXR technology stack, as well as obtained a $1 million defence pilot order from a global defence contractor.

8. Argosy Minerals (ASX:AGY)

Argosy specialises in the development of overseas lithium projects – a strong area of potential growth given the increasing uptake of electric vehicles internationally.

Its flagship development is the Rincon Lithium Project in Salta Province, Argentina, in which it currently holds a 77.5% interest. Argosy expects to eventually hold a 90% interest in the Rincon project.

In addition to Rincon, Argosy is also the full owner of the Tonopah Lithium Project in Nevada, USA.

9. King River Resources Ltd (ASX: KRR)

Founded in 2002 and headquartered in Perth, King River is a mining exploration company that focuses on developing rare earth minerals and other minerals projects in Western Australia.

The company's main project is the Speewah Specialty Metals Project, which has significant deposits of rare earth minerals and vanadium. King River's share price could benefit from increasing demand for rare earth minerals as a result of the broader adoption of electric vehicles.

10. Gibb River Diamonds (ASX:GIB)

In addition to diamonds, Gibb River has a diverse range of mining projects in Australia that include gold, zinc-lead and phosphate.

The company recently completed phase 8 drilling at the Edjudina Gold Project in Western Australia. It also has an interest in the Iroquois Zinc-Lead Project in Western Australia with joint-venture partner Strickland Metals Limited.

How to trade or invest in ASX penny stocks

1. Learn more about ASX penny stocks

2. Find out how to trade or invest in ASX penny stocks

3. Open an account

4. Place your trade

ASX penny stocks: further important information

ASX penny stocks are often thinly traded. This means that unlike the blue-chip shares of the ASX 200, where every stock usually has a wall of potential buyers, there may not always be enough buyer demand when investors want to sell.

In addition, penny stocks are often loss-making, using any money available to invest in growth. This makes them highly speculative investments. Moreover, they usually receive little to no analyst coverage, making truly informed trading decisions difficult.

They can also even lack in-depth trading records. And some penny stocks are notorious for diluting stock value by issuing additional shares.

These risk factors mean that for most investors penny stocks should only form a small percentage of one’s portfolio. And for those closer to retirement who are investing over short timeframes, they arguably should be avoided altogether.

Of course, despite these significant risks, ASX penny stocks hold a unique advantage. The right pick can be massively more lucrative than an investment in more established peers.

However, it’s important to beware of the echo chamber of success. Skyrocketing penny stocks are extremely likely to hit mainstream news, but the success stories are significantly outnumbered by the failures. Moreover, once an ASX penny stock hits the headlines, it's often too late to partake in its success.

But many of the largest blue-chip stocks on the ASX began trading as penny stocks. For example, the largest stock on the ASX, BHP, used to be a penny stock back in 1999. Afterpay was a penny stock as recently as 2017. International market titans Apple and Amazon also once qualified as penny stocks for the investors with the foresight and luck to invest early.

However, even if an investor buys into a successful penny stock at an early stage, they can only experience the full financial benefit if they continue to retain their shareholding, even after it has doubled, tripled, or even exploded in value.

And psychologically, investors must also be confident that others will hold their shares, as it only takes relatively few sellers to depress a penny stock’s share price.

This is complicated by the hallmark thin trading; a penny stock that has just doubled in price may not have enough buyers if too many are selling at the same time. This all requires extremely high conviction.

For this reason, an ASX penny stock must have a solid investment case that remains strong regardless of volatile share price movement. For example, this could include new technology, like Apple’s iPhone, a unique idea, such as Amazon’s approach to online shopping, or even something as banal as exclusive rights to a mining project.

But it’s also important to note the positives. When a company is small, it can be easier to grow quickly, while larger companies eventually reach a growth rate ceiling. And ASX penny stocks offer retail investors the ability to buy large numbers of shares for relatively little money.

This means an investor can benefit from the potentially rapid growth of a large number of penny shares across multiple sectors, whilst also keeping the high-risk investments as only a small percentage of their overall portfolio.

In the current economic environment, many penny stocks are struggling to access finance as investors flood to blue chips. Of course, this elevates the risk-reward ratio even higher, as some are now available at a discount compared to relative risk.

In summary, ASX penny stocks usually constitute highly risky investments with the potential to deliver supersized returns.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. 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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