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What Are The Top Stocks To Buy Under $5?

The best cheap stocks to buy now certainly have risk, but some offer head-turning reward potential, too.

27 Min Read
Last Updated March 31st 2021

7 Stocks Under $5 With Massive Upside Ahead

Looking to invest in small-cap stocks? Take a look as we have chosen 7 of the best performing small-cap stocks that are great buys in 2021 with their attractive $5 and under price tags. 

For many investors finding stocks on the market under $5 today can be challenging. Yet when you do find these quality penny stocks they can be extremely rewarding if they outperform. 

Over the past year, the market has reached new highs leading to increasing share prices, yet there are plenty of good cheap stocks available today that offer a strong attractive outlook. 

A perfect option if you are an investor who likes to keep costs low and or if you are seeking to add diversity within your collection. 

Although these head-turning stocks can be challenging as they hold extremely high-risk elements, being extremely volatile as they hold low share prices causes many investors to overlook such stocks. 

Having said that if an investor carries out extensive research, is clued up on all of the investing how-to’s and with the positivity of luck thrown in, you can be rest assured that you can find the best of these hidden gems sitting at low prices with strong upside potential. 

Before we take a look at the 7 best stocks under $5 we have created a guide below reviewing the most important points that are involved when looking at and considering the best penny stocks at $5 and under to invest in. 

What you need to know before you invest in $5 stocks

 

What Are Penny Stocks?

For beginner investors, stocks that are priced at $5 or less are typically known as penny stocks. These stocks could also include dollar stocks and fractional shares who can also fall under this category. 

Penny stocks are in relation to smaller companies or typically start-up companies sitting in any sector that trade on various markets. More notably these stocks trade over-the-counter (OTC) as well as trading on world-recognised exchange markets at their $5 and under price. 

 Although these stocks sit at attractive prices they are not traded often due to their little liquidity with these companies being on a smaller scale. With increased higher risk elements, the lack of public information available for investors which can be difficult to obtain, this leaves many investors hesitant to invest in penny stocks. 

However, penny stocks that are publicly traded on well-known exchanges hold less risk factors than stocks that are not included on these exchanges due to their confirmed performing history. 

In a nutshell, penny stocks are small or start-up companies that are not as well-known as mid or large-cap stocks or more commonly ‘blue-chip’ stocks, spreaded across various markets. Yet many are undervalued for the high potential gains that they could possibly archive. 

But noting the obvious it is a possibility that these stocks can archive high gains as nothing is guaranteed with any investment, but with these small-cap stocks it can be a bigger gamble than investing in larger stocks on the market. 

But if you are an investor that knows the in’s and out’s of penny stocks and knows exactly how these stocks operate and what to look for, then penny stocks can offer fantastic revenue growth as they look to appreciate well as time moves forward. 

Is Buying Stocks Under $5 A Good Investment? 

The answer to this question in short comes down to it all depends on how much an investor knows about these investments.

Stocks in general are deemed to be a fantastic investment alongside many other popular forms of investing such as Real Estate and the safer form of investing in Bonds. 

As a collective, all of these investments are and can be extremely rewarding to a beginner investor who is looking to become involved in the action, especially in the long-term as they create more wealth over time as they take advantage of the economy. 

Yes, let's be realistic and clear stock prices can fluctuate from one extreme to another. But a great example to show how well stocks can perform is by taking a look at the leading S&P 500 index as it has achieved an annual average return of 15.76% over 2020 with an average return over the past 10 years being 13.6%. Whilst globally investing in real estate took a dive in 2020.

One of the first and key points to advise, if you are a beginner investor who is considering investing in penny stocks, is to start with a diverse portfolio or simply a basket of stocks which are mainly built up on solid and more reliable stocks with the additional penny stock being placed inside your collection to start. 

The reasoning for this is due to the strong risk elements that penny stocks hold so adding larger stocks can balance your portfolio nicely with your chosen penny stock. As time moves these $5 and under stocks can potentially grow hugely adding great value with increasing cash-flow being added to your portfolio.  

Lastly, another important factor to consider is popular trading strategies. 

Pennystocking is what we are on the subject of which is a unique style of trading that requires a clear thought process. You have to have a clear strategy or strategies when investing in these stocks even if it might just be for the short term outlook as investors take advantage of small price movements instead of investing in these stocks for the long-run. 

Having said that there are other popular investing strategies to consider, whether it be dividend-paying stocks that are of interest providing a regular cash-flow intake, targeting specific industries, trading quickly in the form of day trading and lastly investors who opt to adapt the buy-and-hold long-term strategy. 

Either way whichever strategy is more suited to your investing needs, investing for the long-term is ultimately what is going to bring you the most wealth and yes penny stocks can offer you this if you trade these undervalued stocks in the right way and get in at the right time. 

The Risks And Rewards Of Investing In $5 And Under Stocks 

As we have already established penny stocks offer both strong rewards and high-risk factors. 

To start on the positives penny stocks can offer huge growth opportunities. To confirm this did you know that the leading stock Amazon Inc (AMZN) was once classed as a penny stock back in the late 90s dipping below a little cost of $2 per share. 

A far cry away from where the stock sits today with a share price of $3,052. 

Although without getting too carried away finding these hidden gems like Amazon can be rare but yet not impossible. A realistic prime example is Novavax Inc (NVAX) a pharmaceutical company whose share price rocketed from just under $4 at the start of January 2020 to over $160 per share at its high over the year due to popular demand of a Covid-19 vaccine. 

These profit margins are what many investors dream of but if you look hard enough you can find them. 

Another advantage of investing in penny stocks is that these stocks are great investments for beginner investors who are wanting to join in on the investing action. Sitting at achievable lower costs in comparison to the ‘blue-chip’ stocks making your investment goals achievable whilst being traded publicly across various markets. 

Although price is a key element, so is volume. Ultimately the more shares you have within a company as it grows the more profit you will gain. And investing within stocks priced at $5 and under can see you owning more shares than of bigger well-known stocks providing you with more opportunity for growth.  

A last positive note to mention is that you can invest in penny stocks all over the globe. Having your hands caught up in international markets can be an exciting route to take. Just be mindful if you do invest in international penny stocks not only need to be a savvy investor, you will also have to participate in becoming an avid observer taking in all current affairs across the countries you are looking to invest in. 

Read Also: What Are The Best Stocks To Buy For Beginners?

Risk Factors 

Swiftly moving on to the risk factors of penny stocks we have established that these investments are risky business. Whether it be that these stocks are start-up companies or companies that are on the verge of folding altogether, either way these investments are extremely risky games. 

A strong point to mention is that many penny stocks $5 or under can be companies that are on the verge of going bankrupt so they will look to sell shares for as little as possible in order to raise money. This can be said of new businesses too, as with any new business you need some form of financial backing but due to lack of evidence being available it may be hard to detect if the stock is already in trouble. 

Then you have additional disadvantages such as low trade volume causing these stocks to be harder to trade as many investors may not wish to invest in such risky investments. 

Strong fraud risks are also more apparent within penny stocks which is why it pays to be extremely vigilant when choosing your chosen stocks to look out for certain warning signs such as unusual activity within footnotes and more. 

Just like fraud, there are also many scams that float around small-cap stocks including one scam in particular that targets penny stocks, the ‘pump and dump’ scam. This illegal act is carried out by an investor who is promoting and advertising a stock to boost its share increase based on false information. This then allows them to go on and sell their shares once the stock has risen for a more expensive price. And in some cases, stocks have risen to extreme highs even beating their market cap until the stock has crashed leaving all shareholders involved left with very little.

As you can see, investing in penny stocks can be extremely volatile and holds strong risks connected to these stocks. But if you carry out the right amount of research, have a good mindset and use your resources wisely then the risk factors will be a lot lower. 

How To Trade Stocks Under $5 

Having covered the important need to know elements of penny stocks now it is time to look at how to trade these stocks. 

As mentioned penny stocks can be traded on public markets including the New York Stock Exchange (NYSE) and the popular marketplace NASDAQ. But whilst there may only be a few options to choose from, $5 or under stocks normally trade through over-the-counter transactions (OTC) which is carried out electronically through the OTC bulletin board (OTCBB). 

Penny stocks still have requirements to meet when being traded on OTCBB as companies have to file a registration statement with the SEC before they can look at allowing investor interactions. 

Penny stocks that are traded on OTCBB are typically too small in size to be traded on the bigger markets, just like there are further penny stocks available to invest in that are too small to be traded on OTCBB. 

These $5 and under stocks can be found under the listing service Pink Sheets and are generally too small to be traded on a higher exchange. This does not mean these stocks can not, they might not wish to, creating speculation as to why a company wishes to keep all of their financial statements private if they sit in a good financial spot, draws in elements of concerns for many investors.  

This then naturally increases speculation of high-risk elements due to the lack of transparency that surrounds and is more prone to fraudulent activity along with these stocks being harder to trade. This form of investing should be carried out smartly and always use caution when seeking to invest within these stocks.

The Best 7 Stocks Under $5 To Buy Today 

Having looked over the pros and cons of what investing in penny stocks entails, now let's take a look at 7 of the best stocks to invest in priced at $5 and under available today. 

But first many investors beg for the answer to this question, where are all the good potential penny stocks? As evidenced over recent times it has been rather challenging to identify these stocks as the market seems to have gone from strength to strength over the past 10 years, pushing stocks to rise to new all-time highs causing many stocks to be overvalued based on their price-to-earnings ratio (P/E). 

As more companies are becoming clever and extremely creative, it becomes harder to be a part of such small-cap stocks at a good price. Take the leading S&P 500 index which is home to over 500 of the USA’s biggest companies, many stocks are trading almost 15x above their earnings, proving that stocks are a brilliant investment. 

Whilst stocks are becoming more expensive as time moves on there are still undervalued hidden gem stocks at $5 and under that can offer great high earnings potential as they seek to achieve success. Here are 7 of the best stocks under $5 that investors should consider to buy into today. 

7 Best Stocks Under $5: 

  1. Limelight Networks Inc (LLNW) 
  2. LiveXLive Media (LIVX)
  3. Telefonica SA (TEF) 
  4. Drive Shack Inc (DS) 
  5. OrganiGram Holdings Inc (OGI) 
  6. Nokia Oyj (NOK) 
  7. Kadmon Holdings Inc (KDMN) 

 

We’ve pulled up details on 7 completing stocks that fit this profit of low price and huge upside potential. Above 100%, according to financial experts and analysts.

1. Limelight Networks Inc (LLNW) 

Market Capitalisation: $438.19m 

Limelight Networks Inc (LLNW) witnessed a 15% increase in revenue over the past year with reported revenue hitting $230.2 million, up from $200.6 million in 2019. The company's 2020 GAAP net loss also increased to $19.3 million against 2019’s net loss of $16.0 million. 

These Full Year results have been impressive for the delivery content network, and for the first time this stock has hit double-digits in terms of revenue. Alongside, the stock also witnessed full-year Adjusted EBITDA rise by 35% from 2019 to $24.5 million, and a new President and CEO, Bob Lyons adding a fresh pair of innovating eyes on the company. 

The stock delivers an array of services including Content Delivery, Edge Compute, Cloud Security and its Video Delivery. Then you look at the stocks New Generation Real-time Streaming service, it delivers live video streaming from anywhere in the globe and with little to no delays. The easy-going streaming viewing experiences is a sure way to attract audience attention moving forward. 

Within the company's Q4 performance LLNW did not match up to its previous Q4 results, falling hugely shy in some key areas including generated revenue being $55.4 in comparison to $60.1 million YoY confirming an 8% decrease and adjusted EBITDA at $3.6 million against $11.4 million in Q4 2019. 

Despite recent declines the stock is setting up for 2021 and looking further ahead with the company’s new CEO at the helm, the rollout of its Real-time streaming product alongside its additional strong avenues. This could be the strong push forward that LLNW stock needed proving that now is an ideal time to buy into this stock. 

2. LiveXLive Media (LIVX) 

Market Capitalisation: $334.37m 

The music, audio and video streaming platform has been a saviour for many music lovers over the past year as heading to a live concert was an impossible task.

This is where LiveXLive Media (LIVX) made it possible for individuals to enjoy parties virtually by broadcasting live concerts throughout the pandemic resulting in millions of views across its network and hitting over a billion views on the social media platform TikToK. 

The stock's permanence over the past year has been fantastic pushed on heavily due to the COVID-19 pandemic. In the company's recent Q3 report revenue increased by 96.9% YoY in Q3 reaching $19.1 million contributing to a 9-month revenue increase to 53.5% to $44.2 million YoY. 

Another two highlights for the stock were its Contribution Margin which rose to new highs to a record $4.6 million in Q3 hitting more than double from the previous year's results at $2.1 million. 

GAAP Loss from operations saw a 4% improvement in Q3 resulting in a 27.2% improvement over the past 9 months. 

LiveXLive’s innovation plans are looking to boost this stock to new highs with its partnership with social media giant Facebook (FB) with its pay-per-view shows which will include sports, comedy and podcasting. 

With the world still operating under COVID-19 measures, this avenue of streaming online will no doubt be popular for many more years to come, especially as the world adapts further into the digital space.  

3. Telefonica S.A (TEF) 

Share Price: 3.86 EUR

The telecommunications industry has become a safety net for many of the years, and communication via phone has become the way forward worldwide over the past year as many have been unable to have face-to-face interactions. Additionally, the communication sector looks to achieve further success as it pushes into the world of the 5G revolution. 

Telefonia S.A (TEF) the Spanish telecommunications company is one of the largest telephone operators and mobile providers in the world today, dominating around Europe especially. The stock is also commonly traded under various names including O2 and Vivo.

Despite a decline over 2020 as it was evidenced in the stocks Q4 results, revenue took a -12% decline to EUR 10.9 billion YoY in Q4, but the stock did see an increase in
Net Income as it grew just under 40% in 2020 to EUR 1.582 million. 

Looking ahead this stock could witness greater returns over the coming years into the post-pandemic world as the company pushes its ‘NextDefense’ cybersecurity service to protect against cyberattacks as one of its latest new pieces of technology, along with innovating and pushing its 5G avenue. 

In recent days, two analysts who are covering the stock are being very bullish giving the stock a target price range of between 9.38 at its highest and 4.58 at its lowest confirming that this stock could see a potential upside of just over 70% if predictions come true. 

This telecom stock has a lot to offer as it offers plenty of products and services worldwide that can still draw attention even in challenging and difficult times.  

4. Drive Shack Inc (DS) 

Market Capitalisation:$303.09m 

Drive Shack Inc (DS) is an American public golf course and entertainment company that is most certainly going to see more action as the world moves to more normal times. 

Having said that, if you do not reside within the USA then you might not be aware that in fact USA’s easing of lockdown rules may differ from the rules your country is sitting in, but for the international golf lovers, this is where this stock might benefit more so through tourism. 

In recent days DS announced their Q4 and Full Year results resulting in fairly well despite the challenging year. The company witnessed a positive adjusted EBITDA of $5.3 million in Q4 up from $7.4 million in the same period last year, but overall took a 16% decline in revenue YoY due to the strong impact brought on by Covid-19. 

The company has already started to push the reopening of golf courses across the US including one of its main courses in Orlando, Florida which reopened in December 2020 and generated a revenue income of $7.3 million in Q4 down by $5.7 million in 2019.

Nonetheless, all of these points can be seen to be positives for the stock as we still sit across the world in challenging times, but it is showing that the demand is still apparent. 

Other strong positives to take from this stock is that the company's golf memberships increased by 20% in 2020 and an increase of 37% of member rounds on American Golf’s five private courses compared to 2019. American Golf’s revenue totaled at $53.1 million in Q4 a short decline of $5.8 million YoY. 

This penny stock under $5 is proving to be one of the most attractive and competitive penny stocks available to buy today with a share price of $3.22, holds a consensus ‘Buy’ rating with an average analyst price target of $5.25 a potential upside of 47% from today's price. 

5. OrganiGram Holdings Inc (OGI) 

Market Capitalisation: $970.16m

The news surrounding legalizing usage of marijuana across US states has caught and is still continuing to captivate investors' eyes across the globe for being an industry that could offer great growth prospects, and they are not wrong. 

In recent days New York has become the latest state to legalise recreational use of marijuana, and no doubt more will continue to follow suit now that the new President Joe Biden is in power who is in favour of such happenings along with strong government backings. 

But one stock that had to make the shortcut is OrganiGram Holdings Inc (OGI). This cannabis stock could be that little positive surprise that many investors look to seek, especially as more speculation has been confirmed as the leading tobacco company British American Tobacco (BTI) recently bought a stake within this Canadian company, highlighting this attractive cannabis stock even further.   

Within the stocks fiscal Q1 outlook the stock is already ahead with 42% and 14% increase YoY in sequential growth in recreational gross revenue, a positive cash flow within the 2nd and 3rd quarters, regenerating product portfolio with proven success and lastly the companies expansion plans are looking set to increase in terms of staffing levels due to demand in sales and fitting in with the economic demand. 

The company's Q4 revenue also increased with a net provision of $3,698 to $20,400 from Q4 2019 at $16,290, whilst cost of sales increased dramatically ending in August 2020 due to a significant rise in sales volume. This enabled the company to continue to chip away at its debt levels as it fell just under 50% at the end of 2020. 

As the leading Canadian brand continues to deliver and push forward its portfolio of products for both recreational and medical usage of marijuana and as more states grant legislation within the US, this cannabis stock is penny stock must-have to be added to your collection. 

6. Nokia Oyj (NOK) 

Market Capitalisation: $22.81b 

The Finnish multinational telecoms stock has witnessed its fair share of ups and downs within its shares so far in 2021, pushed on heavily through Reddit's WallStreetBets forum. This saw NOK shares rise to a high of $9.79 in January to where the stock currently sits back in its medium position of $4.02 per share today. 

Within the company's Q4 report it was confirmed that Net sales decreased by 6% on average YoY with sales down by 4.8% in Q4. In the bigger picture NOK delivered not so bad results considering the challenges the world has been facing even delivering better than what some Wall Street analysts were expecting. 

NOK also confirmed that they are sitting in a positive territory with Net cash and current financial investments coming in at around EUR 2.5 billion up by EUR 0.8 billion YoY. Alongside an improving gross margin and operating margin increasing by 2.1 percent and 1.9 percentage points respectively. 

Nokia’s aim is to solidly focus on becoming a strong leader within the new 5G network enrollment, seeing an increase even beating the company’s own aim of 35% on KPI in 2020 and hit 43% confirming that the company is on track to reach their target of 70% by the end of 2021. 

With the company's new CEO Pekka Lundmark running the operations, NOK is focused solidly on outshining its competitors including the leading Chinese company Huawei with building and providing their 5G network infrastructure greater and bigger than any other that’s in its sights.

Although Nokia may have a while to go before the stock fully turns into a positive ray of light, the stock is clearly on its way making this penny stock a potentially good investment to add to your collection whilst it sits on a share price of $4.02.  

7. Kadmon Holdings Inc (KDMN)

Market Capitalisation: $623.69m 

The last penny stock to be included on the list is Kadmon Holdings Inc (KDMN). 

The biopharmaceutical company seeks to discover, develop and distribute transformative therapies for unmet medical needs. The stock has an array of products under its belt including Belumosudil (K025) orally administered to treat inflammatory and fibrotic diseases, KDMN specialising in developing the next-generation immuno-oncology therapies for the treatment of cancer and lastly the stocks leading I-O product KD033 for liquid and solid tumours. 

In recent days the company has announced its trial-in-progress of the product KD033-101 expanding the products treatment for advanced tumours. 

Wall Street analysts who are covering the stock are being particularly bullish, giving an average price target of $13.00 a 262.12% upside from the stocks price today with a high price target of $20.00. 

The targets come from the stocks recent earnings report as it outbeat estimates within Q4 with a revenue of $0.62 million at the end of December 2020. Analysts are now also predicting revenues to top $19 million in 2021, an almost 60% rise in sales over 2020 resulting in giving the company a consensus ‘Strong Buy’ rating. 

If you are looking to add a biopharmaceutical stock to your portfolio KDMN is a solid stock to buy in 2021 that has strong growth potential. 

The Bottom Line

To summarise, investing in penny stocks can be extremely rewarding for investors so long as the right amount of research has been carried out. 

For beginner investors these stocks can be a great way to get your foot in the door into the investing world with their attractive prices and their room for growth. Two stocks from this list that stand out as perfect first time investments are LiveXLive (LIVX) and Drive Shack (DS) as these two penny stocks sit in attractive positions with evidenced history and a good outlook on future earning potential as they seek to grow. 

If you are an experienced investor who is looking to add more diversity with throwing in a penny stock into your collection, a great stock pick is OrganiGram Holdings (OGI). As the cannabis industry is looking set to soar over the coming years this stock is sitting in an extremely attractive spot even drawing in large-cap brands to invest in this company today. 

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