Best UK penny stocks for traders and investors

We explain what you need to know about penny stocks and outline the top 10 gainers for investors to keep an eye on.

What is a penny stock?

Penny stocks or penny shares are common stock that trade with a share price below £1 in the UK and below $5 in the US. As they are small, low-valued businesses, they offer higher risk and reward to traders.

Penny stocks are regarded as a more speculative investment than larger businesses because they are geared for growth and often loss-making, with many yet to generate any income or develop a viable product or service.

The US Securities and Exchange Commission (SEC) has formally defined a US penny stock as one with a share price below $5 per share, having previously been a stock below $1 per share beforehand. Many of these are quoted over-the-counter (OTC) but some also trade on exchanges.

The UK does not have its own formal definition although a penny stock is generally considered to have a share price of below £1, with most confined to AIM.

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What are the risks and rewards associated with penny stocks?

A number of well-known companies started off as penny stocks. Those that invested in companies such as Ford Motor Co or JD Sports Fashion in the early stages have been well rewarded, however it is important to stress that many penny stocks ultimately fail and that investing can be highly speculative.

The share prices of penny stocks can be volatile, either as a result of lower liquidity or because it is sensitive to news and market developments. Penny stocks can turn into a huge success or an utter failure overnight: winning or losing one contract or the level of success of a new product, for example, can decide their future. Many penny stocks have no track record and it is not uncommon for them to have no assets, operations or revenue.

Products and service offerings are often still in development and yet to be tested in the actual market. This could range from a small pharma stock developing a new drug to a junior miner digging for gold in foreign destinations, both of which are highly risky endeavours but ones that can be transformational if they are successful.

News coverage and analysis of penny stocks is harder to come by compared to gaining insight into larger, more popular stocks, and issues of corruption and fraud tend to be more prominent, although even the largest stocks are exposed to these matters too.

Read more about Singapore's penny stock crash of 2013

It is also worth noting that penny stocks are more likely to raise equity from investors on an ongoing basis as it gives them a way of securing vital funds for growth if traditional lenders refuse to provide debt, or if any available debt is too pricey. Each fundraising dilutes the shareholding of existing investors and devalues the price per share.

How to trade penny stocks

  1. Do your research on the penny stocks you want to buy or short – we showcase the biggest penny stock gainers below
  2. Open an IG account to get started quickly and easily, or try your strategy out risk-free by opening an IG demo account
  3. Place your first trade. You can trade or invest in penny stocks in seconds

With IG, you can invest in penny stocks, or trade them long or short. With investing, you buy UK shares outright from just £3 with an IG share dealing account. You’ll also receive any dividends that are paid out.

When you trade penny stocks, you do so with derivatives like spread betting and CFDs. You won’t own the stock, but you can use leverage to open a position while putting up just a percentage of the capital. This boosts your risk and return. You will also be able to go short on penny stocks – profiting if the share price falls. With spread bets, you can trade tax-free and won’t have to pay a minimum commission.

What are the best penny stocks to trade?

There is an array of penny stocks operating in a broad range of industries for investors to choose from, including some names that will be well known to UK investors and consumers. While some penny stocks are small firms chasing growth there are some big names that have subsequently become penny stocks following steep falls in value.

Top 10 UK penny stock gainers

The table below outlines ten UK penny stocks that have seen their share prices soar higher in 2020, despite the coronavirus crisis weighing heavily on most equities. The qualification criteria is that the companies listed have a share price below £1 and a market cap of below £100 million.

Description Share price movement* Share price
Galantas Gold Gold miner operating in Northern Ireland 1794.00% 18p
Catenae Innovation Blockchain technology 1341% 5.76p
Verditek Solar panel producer 414% 10.18p
PowerHouse Energy Energy-from-waste company 406% 4.55p
Omega Diagnostics Diagnostic healthcare testing 268% 39.95p
Physiomics Oncological drug development consultancy 244% 5.68p
EQTEC Energy-from-waste technology 243% 0.65p
Modern Water Water monitoring products
230.00%
1.98p
Velocys Sustainable advanced biofuels 226% 7.66p
Maestrano Group Data analytics and cloud computing 202% 5.29p

*Data taken from 07/04/2020 - 07/07/2020

Galantas Gold

Galantas Gold is a miner that offers a geographical difference by producing gold, silver and lead in Northern Ireland. Shares had slipped below 1p in March and April 2020, but rallied to 8p per share on 17 April after it consolidated its share capital (turning every ten existing shares into one new share), which naturally pushes the price higher.

Still, shares have managed to maintain momentum after it revealed a drilling campaign at its mine suggested there was much more mineralisation to explore than previously thought.

The UK’s response to Covid-19 means its operations have been impacted. Operations were temporarily shut at the start of April but limited activities, such as processing existing feedstocks, restarted again in May, but actual mining remains suspended.

This is because it is not allowed to complete the blasting needed to expand the project, which had made it inefficient and caused an ‘an increasing financial burden, which has proved a significant drain on the financial resources of the company,’ it said when it released its 2019 results on 12 June. Revenue collapsed and net losses widened.

This has prompted it to raise equity, debt and explore all its other options, including seeking investment from partners or even selling up altogether. It agreed to sell 2.8 million shares in a private placement priced at 13.28p to raise £376,240 in late June, and said it had increased an existing loan facility.

Shares have lost minor ground since peaking at 21.5p in May, but are still trading at 18p. The share consolidation made a large contribution to the boost in the share price since mid-April, but it has still managed to find even higher ground as investors bank on a potential deal.

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Catenae Innovation

Catenae Innovation (formerly Milestone Group) develops products for businesses using the power of blockchain technology. It has been a wild ride for the stock since mid-April. Shares soared from 0.5p to 7.1p in just two weeks, before plunging back down to a low of 1.55p on May 22. Catenae then rocketed again at the end of June and it has, so far, managed to retain most of those gains.

The initial rally was sparked by the company joining a consortium to build ‘Cov-ID’, an identification system that records Covid-19 test results and securely share it. Shares lost ground when doubt was cast over its financial fitness and its ability to deliver the project, but began to pick up momentum after raising equity and completing the project at the start of July, when it became available to commercial customers in the UK and around the world. It has also struck a deal with Newcastle Premier Health, an occupational health and wellness business based in the north east of England, to pilot the 'Cov-ID' app.

It has already been a busy year for Catenae. It recently ‘reset’ the business and is now under new management after a new executive chairman and chief financial officer (CFO) joined in April.

It has also made significant progress outside of its new 'Cov-ID' app, including finalising the development of ‘Onsite ID’, a generic multi-document digital wallet, and by striking a deal to pilot its other apps with Afrik-ID, a company based in Botswana that is owned by David John Newman, who was the country’s former ambassador to the US and Canada.

Start trading Catenae Innovation shares today

Verditek

Verditek describes itself as a clean technology company. It produces super thin, lightweight and flexible solar panels that can cover surfaces that were ‘previously never considered suitable for solar power’. The stellar growth in Verditek shares, which have soared from 1.98p in mid-April to over 10p today, has been driven by its transition from the research and development phase to one actively selling products and generating cash.

The company entered the year in a strong position after securing regulatory approval for its products last year and it has been successfully ramping up commercialisation activities.

It quickly signed numerous deals in various sectors and its new chief executive Robert Richards has brought a wealth of exposure to key markets like the oil and gas industry, where its panels can help make it less carbon intensive. The company has already secured its first customers in the marine and oil markets since his arrival.

It manufactures its panels in Lainate, Italy. The country was where the pandemic first swept into Europe and its factory was impacted, but it has since reopened, albeit with social distancing and fewer staff members.

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Powerhouse Energy

Powerhouse Energy has designed technology that allows energy to be recovered from unrecyclable plastic and old tyres by converting it into a synthetic gas that is similar to natural gas. This can then be used for electrical power generation or to create hydrogen.

The company is another stock on the cusp of moving from the research and development phase to commercialisation, underpinned by its first deal to licence out its technology to Peel L&P.

Peel L&P will be responsible for drumming up customers such as ‘councils and waste management companies’ and will pay Powerhouse £500,000 annually for each site.

Importantly, that is conditional on Powerhouse completing its acquisition of its partner, Waste2Tricity, which is taking longer to sign off than expected. The first site that will use Powerhouse’s technology is already in development, and a second one is expected to be announced before the end of 2020.

Powerhouse has given Peel L&P exclusivity in the UK, and expects to use this same model in other countries around the world. If successful, it will simply licence out its technology to those who can put it into action and collect the annual fees for each site. It is a lean model that could offer huge rewards.

Although investors have understandably become excited around the stock, Powerhouse did issue a statement at the start of June noting the severe increase in its share price, stating it had no reasonable explanation for it. Shares had rallied from below 1p in April to 3.63p on 29 May, but the statement did little to deter the market as shares are currently trading at an all-time high of 4.4p.

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Omega Diagnostics

Omega Diagnostics originally made its name by making tests for a range of infectious diseases such as syphilis, tuberculosis, dengue fever, chagas disease and malaria. Today, it offers tests for CD4 proteins in people with HIV and, after acquiring several businesses, for food intolerances and allergies.

Omega Diagnostics shares started to gain ground in early April when the company revealed it was joining the fight against Covid-19. It signed a memorandum of understanding (MoU) with three other UK companies and the University of Oxford to ‘jointly develop and manufacture a Covid-19 Point of Care antibody test’.

This means it has joined the UK Rapid Test Consortium formed by the government to develop a test that can see if someone has developed immunity after contracting coronavirus.That reached a key milestone in June when Omega was allowed to begin its own work to prove the test can be manufactured at scale for the UK market.

On 20 April, it said it began formalising a separate partnership to provide manufacturing capacity at its site in Cambridge for a Covid-19 diagnostics test developed by Mologic and part-funded by the government. ‘Once ready, the antibody test will be capable of playing a key part towards identifying people that have built up immunity to coronavirus,’ said Omega. Omega will produce ‘up to 46,000 Covid-19 tests per day’, and it secured approval for it to be sold in India in early July.

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Physiomics

Physiomics consults other companies developing oncology drugs, predominantly those for cancer. Although it is still loss making according to its latest results, it is already generating revenue and has some big name clients on its books, including Merck, Sareum and the University of Oxford.

The company has continued to win new contracts, including some that build on successful work already being done for existing clients, demonstrating that its work is valued by its partners. It also said in May that a ‘significant contract is likely to be signed with a new large pharmaceutical client’ that it has been in discussions with since late last year.

‘While is it still possible that the potential new client could withdraw, it is the directors' opinion that this is unlikely. Should the contract be signed, the work is expected to take two of our technical staff around five months to complete,’ Physiomics said.

The company took advantage of its soaring share price in late May by raising £828,750 by issuing 23.7 million shares at 3.5p each. Shares have rallied by over two thirds since then and currently trade at 6.4p.

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EQTEC

EQTEC (formerly REACT Energy) is another stock trying to tackle the world’s waste problems. It has developed technology that allows waste and biomass to be converted into syngas, which can be used to generate electricity.

This means companies that generate large amounts of waste have an opportunity to either make use of it or sell it into another plant. EQTEC acts as a middleman between waste owners, financiers and other stakeholders to help build projects where they are needed, while supplying the technology, advice and (sometimes) an equity investment.

The company has stepped up to a new level this year. Contracted revenue in the first three months of 2020 stood at €2.35 million – compared to the €1.6 million booked in the entirety of 2019.

EQTEC shares began to significantly rise in late May when the company released an update that showed numerous projects were progressing forward in the UK, Europe and the US. It also said it had been approached about ten new deals that could potentially be worth €120 million, which would be transformational for the business.

EQTEC shares are still trading well below 1p, having soared from 0.18p in late May to a high of 0.83p in mid June. Shares have dropped off somewhat since then, but they have managed to retain most of their gains by trading at 0.72p.

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Modern Water

Modern Water was spun out of IP Group and listed on AIM in 2006 to commercialise a range of technology focused on monitoring and treating water. It has spent over £20 million on developing over 100 patents that help improve the efficiency of treating and recycling water.

The company is a shadow of its former self. It started life as a public company with a value of £70 million but is worth less than £10 million today. Still, shares have rallied over the last three months after announcing a wave of new deals and securing orders on the back of the coronavirus pandemic.

The first trigger moment was in March when Modern Water said it had an order backlog for its water monitoring reagents that it wasn’t able to meet. As a result, it outsourced the manufacturing to fellow AIM-listed outfit Integumen in return for 40% of the revenue, and said the deal was worth around £3.75 million over the next three years. Integumen started production six weeks earlier than planned. Integumen shares have risen 83% in the last three months.

Soon after, Modern Water announced that orders for water contamination detection bacteria consumables had soared 46% in the first quarter of 2020. ‘Two months of stock have been shipped in the last two weeks amid growing demand, believed to be connected to the global Covid-19 public health crisis, from existing customers across Spain, Italy and China,’ it said. The demand has also allowed it to double the price of each batch to £500,000, which could increase the value of the deal with Integumen.

Modern Water has also received significant new contracts in India and China, each worth hundreds of thousands of pounds. Modern Water has had to delay the publication of its annual 2019 results due to the coronavirus, but it expects to report annual revenue of £3.1 million and an operating loss of £1.3 million. The significant progress made since the end of 2019 suggests this year could be much better than the last.

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Velocys

Velocys was formed to commercialise technology that was spun out of Oxford University in the UK and the Pacific Northwest National Laboratory in the US. It has developed a reactor that allows waste to be converted into syngas, and then into fuels like diesel of jet fuel. This means it is another waste-to-energy stock on this list, but unlike the has the capabilities to turn waste into an end product.

Velocys shares spiked to their highest level in two years on 18 June, hitting 14.51p. That was after planning permission was formally granted for the Altalto waste-to-fuels project in Lincolnshire.

It will be the ‘first commercial scale sustainable aviation fuel facility in the UK’ that aims to convert hundreds of thousands of tonnes per year of residual waste into sustainable fuels, mainly aviation fuel. Importantly, the project is being developed with two formidable partners: British Airways (part of airline group IAG) and a subsidiary of Royal Dutch Shell.

However, shares quickly fell as sharply as they rose once the company conducted a placing at just 5p per share, selling 400 million shares to raise £20 million. Shares still comfortably trade above the placing price, but well below the recent high.

Velocys has been largely shielded from the coronavirus pandemic and has not reported any problems so far apart from the delay to the release of its 2019 annual results. Still, it has said it expects to report annual revenue of £300,000 and an operating loss of £9.8 million.

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Maestrano Group

Maestrano is a data analytics firm that has patented cloud based platforms used by key sectors such as banking. Its products range from business intelligence to data visualisation. After buying engineering surveyor Airsight for £1.2 million in shares last year, it has started to break into the infrastructure space by helping road, rail and energy networks collect and utilise the data they need to improve.

In January, Maestrano Group announced it had won a new contract with the Australian Rail Track Corporation (ATRC), a state-owned company responsible for managing the rail network in the country. However, shares only took off when more details were released in early July, when ARTC decided Maestrano’s technology would be used to complete track inspections rather than do them manually. Furthermore, it also announced that it had formalised a partnership with Esri so they could both better serve ARTC, which is a mutual customer of both businesses.

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You can trade all of these UK penny stocks with IG. Simply open an account and search for the stock on our world-class platform.


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