There are risks associated with any investment – there’s no such thing as a surefire investment, although tools like the Portfolio Grader can make your life easier when looking for stocks to buy and those to avoid. One of the riskiest investments are in F-rated penny stocks, and those should be avoided at all costs when you’re considering your portfolio.
Penny stocks are low-priced securities, but they really don’t cost a penny. Instead, they are shares of stocks that are priced at less than $5 – still a pittance compared to some of the top names in the market. While some large companies fall into penny stock territory, penny stocks often represent small, less established companies. While the low cost and potential for high returns can make penny stocks appealing to some investors, they come with significant risks, especially when dealing with F-rated penny stocks.
F-rated penny stocks represent companies that have the lowest ratings from the Portfolio Grader based on factors like earnings performance, growth, trading momentum and analyst sentiment. These ratings show poor financial health, unstable management, or dubious business practices.
Another huge issue with F-rated penny stocks is that they are volatile. You have to have a high risk tolerance because these stocks often experience significant price swings within short periods, driven by speculative trading and limited market liquidity.
It is very difficult to predict the day-to-day price movements of penny stocks, which means a bad bet can wipe out your investment pretty quickly.
The names on this list all get “F” ratings in the Portfolio Grader, and should be avoided this month.
Tonix Pharmaceuticals (TNXP)
Tonix Pharmaceuticals (NASDAQ:TNXP) is a biopharmaceutical company based in New Jersey. The company works on created drugs and therapies to treat disorders of the central nervous system.
It currently has a drug candidate in Phase 3 testing to treat fibromyalgia, and a treatment in Phase 2 trials that would treat long Covid-19 symptoms.
But one of the challenges of investing in pharma companies is the expense. Research and development takes a lot of money, as does the clinical trials. And even after all that, there’s never a guarantee that the drug will come to market. That’s why investing in a penny pharma stock is particularly dangerous.
Tonix stock fell by 40% in June when it announced a proposed public offering to raise money for its continued funding. Investors don’t like it when their stock is diluted, andthis is the second time. Tonix also completed a 1-for-32 reverse stock split in June to try oto keep the stock price up.
Even when that reverse split, TNXP stock is barely over $1 per share again. The stock is down 91% this year and gets an “F” rating in the Portfolio Grader.
Nauticus Robotics (KITT)
Nauticus Robotics (NASDAQ:KITT) is an interesting penny stock. The company makes underwater robots and software that is used by energy, aquaculture and security systems.
Nauticus markets itself as a solution that can help companies manage and maintain offshore wind farms. It says that its robots reduces the need for divers and topside personnel.
But being an interesting company and being a good investment doesn’t go hand-in-hand. Nauticus only has a market capitalization of $15 million, and a stock price of roughly 15 cents per share.
That’s why the board held a special meeting on June 17 in which it increased the number of unissued common stock shares from 625 million to 5 billion shares. And it also got shareholders to sign off on a reverse stock split that could be as little as 1-to-6 or as much as 1-to-70 shares.
KITT stock popped briefly on the news before returning to its depressed levels. Meanwhile, earnings results for the first quarter showed only $500,000 in revenue compared to $2.8 million a year ago.
The adjusted net loss was $7.4 million for the quarter, which was an improvement from the first quarter a year ago when it lost $10.7 million.
KITT is in rough shape, down 78% this year. It gets an “F” rating in the Portfolio Grader.
Mullen Automotive (MULN)
I’ve been pretty hard on Mullen Automotive (NASDAQ:MULN), which is an electric vehicle company that’s struggling to gain relevance.
I wasn’t impressed in 2023 when the company enacted three reverse stock splits, including a 1-for-100 split in December, just so it could remain listed on the Nasdaq.
But Mullen is making a legitimate effort to remake its business by becoming a manufacturer of commercial EVs. It signed a new deal to supply 40 commercial vehicles to a company in Switzerland. It also signed a franchise agreement with Eco Auto, a dealership located in Boston, that’s focused on EVs.
I appreciate that Mullen is trying to salvage some value. It invoiced $16.3 million in vehicles in the second quarter of fiscal 2024. But losses are still massive, with a net loss of the quarter of $235.3 million and a cash burn of $120 million.
MULN stock is down 82% this year and gets an “F” rating in the Portfolio Grader.
Avalon GloboCare (ALBT)
Avalon GloboCare (NASDAQ:ALBT) is a biotechnology company that develops diagnostic and clinical laboratory products. It’s working on a commercial Breathalyzer system that would be a handheld device that can detect acetone levels.
It also has a research project with the Massachusetts Institute of Technology to create a QTY code protein design platform.
The advancements are interesting, but the company has some issues at well. In May it got warning from Nasdaq that as of May 22, the company had not yet filed its first quarter report. When the report finally came out, it showed a net loss of $1.36 million, or 12 cents per share, versus a loss of $2.91 million and 29 cents per share in the same quarter a year ago.
Avalon has just over $300,000 in cash on hand, so it will have to be careful with its finances if its going to complete its projects.
ALBT stock is down 14% this year and gets an “F” rating in the Portfolio Grader.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) is a good company with a good idea and it simply got outplayed.
The Biden administration is all-in on building out the national infrastructure to power electric vehicles, and it made perfectly good sense for a company like ChargePoint to be in the forefront of making that happen.
But then there’s Tesla (NASDAQ:TSLA). Tesla has more than 40,000 charging stations and a powerful automotive company that has a vested interest in getting as many charging stations out there as possible. Tesla’s charging stations are all branded with the company’s name of course, making them a valuable marketing and advertising tool that just makes Tesla stronger.
Tesla also gets billions of dollars a year by partnering with other automotive companies so they can use the Tesla network.
Where does that leave ChargePoint? Not in a good place. Earnings for the first quarter of fiscal 2025 showed revenue of $107 million, down 18% from a year ago. The company posted a net loss of $71.8 million, which was a 10% improvement from last year.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.