10 Best Penny Stocks to Buy in December 2021

Penny stocks have been weak over the last month after the emergence of the omicron variant. While the year started off well for penny stocks and many of them soared on buying interest from retail traders, including those on Reddit group WallStreetBets, penny stocks looked weak of late.

The SEC defines penny stocks as securities that trade below $5 and are issued by small companies. Penny stocks are more volatile and require higher due diligence as compared to larger companies.  In general, they are risky as compared to larger companies. However, if you can tolerate the extra risk, they are an exciting asset class. Here are the 10 best penny stocks that you can buy in December 2021.

1. XL Fleet (XL)

XL Fleet is an EV (electric vehicle) company that went public through a reverse merger with Pivotal Investment in 2020. The stock recently hit an all-time low of $3.07 but has since rebounded. Meanwhile, if you are looking for a penny EV stock to buy for 2022, XL looks like a good bet. The company provides electrification solutions for fleet customers across North America.

Unlike some of the pre-revenue EV companies, XL Fleet has an active customer base and is also posting revenues. In the third quarter of 2021, it posted revenues of $3.2 million which were around half of what it had posted in the corresponding quarter last year. The revenues tumbled amid the global supply chain issues which have especially taken a toll on automotive companies.

XL looks like a penny stock worth looking at

XL Fleet stock came under pressure after it was targeted in a short-seller report. The company denied the report but it nonetheless took a toll on sentiments. The company had $366.7 million worth of cash on its balance sheet at the end of September which should take care of its cash burn in the medium term.

The company has been working towards expanding its revenue base and its customers have driven over 170 million miles. In November, the Defense Department awarded it a contract to build prototypes for fuel-saving technology for tactical vehicles.

The stock has a market cap of only about $530 million. If the company can reach anywhere near its vision of being the leader in fleet electrification, the stock would deliver handsome returns from these price levels.

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2. Clover Health (NYSE: CLOV)

Clover Health, which merged with a Chamath Palihapitiya SPAC has also joined the ranks of penny stocks. The stock trades at a fraction of its 52-week highs that it hit amid the Reddit frenzy. If you are looking to buy a penny stock that could be a multibagger, CLOV would fit the bill. Meanwhile, like XL Fleet, Clover Health was also targeted in a short-seller report which accused the company of hiding material facts including a Department of Justice inquiry. It also accused the company of several other wrongdoings.

CLOV Health is the only Palihapitiya company in the penny category

CLOV is the only Palihapitiya company that is in the penny stock category. While it is currently making losses, like many other startup companies, it expects to be EBITDA positive by 2023. The company expects US Medicare Advantage spending to more than double between 2019 to 2025, and reach $590 billion. The expected increase in Medicare Advantage is positive for companies like CLOV.

The company’s revenues are growing at a brisk pace and increased 153% YoY in the third quarter. Its GAAP Medicare Advantage Medical Care Ratio also improved by 850%. The company’s current annual run rate is around $1.7 billion, which is less than half of its current market cap.

The stock should see better days in 2022 after a dismal 2021. Overall, if you are looking to buy a penny stock in the healthcare industry, CLOV looks like a good fit.

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3. Lordstown Motors (NYSE: RIDE)

Lordstown Motors is another penny stock in the EV industry that looks worth watching. The stock has been under severe pressure this year. Firstly, Hindenburg Research accused it of inflating the order book. The company did acknowledge some of the findings and eventually, its CEO and CFO quit. The company also faced a cash crunch and had to rope in a private equity player for funding. It also sold its Lordstown facility to Foxconn which will now produce the vehicles on a contract basis.

RIDE is a penny EV stock

Lordstown also delayed the production timeline for its Endurance pickup to the back half of 2022. RIDE seems to have left the worst behind. The partnership with Foxconn would also lower the execution risk for Lordstown. Notably, Foxconn sees contract EV manufacturing as a big opportunity and has also tied up with Fisker for their second car which has been named Project PEAR.

If the Endurance model can compete effectively against the upcoming pickup models from Tesla and Ford, RIDE stock can see much better days ahead. While it won’t be easy to take on Ford’s F-150 electric and Tesla’s Cybertruck in the category, even if the company can manage to capture a small size of the market, it could create significant shareholder value.

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4. Senseonics (NYSE: SENS)

Senseonics looks like another good penny stock to buy in December 2021. The company produces the Eversense CGM (continuous glucose monitoring) system which is an implantable device and could revolutionize the diabetic care market. The CGM market is expected to rise at an annual pace of 12.7% between 2020 and 2027 according to Grand View Research. It forecasts the market to reach $10.4 billion by 2027.

SENS is a penny healthcare stock

Currently, the Eversense CGM has to be implanted every 90 days. The company has filed with the FDA to increase the implantable life to 180 days which if approved would cut the need for a healthcare professional visit by half. The stock has fallen sharply over the last month amid the broader sell-off in penny names.

The company is producing an exciting product that can create strong demand for itself. It has also restructured its business and outsourced the commercialization function to Ascensia. The good point about SENS is that it already has a product and just needs to efficiently commercialize it. This is unlike clinical-stage companies that don’t have an approved product.

Looking at the fall in SENS and the massive market opportunity ahead, it looks like a good penny stock to buy for 2022.

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5. Paysafe (NYSE: PSFE)

Paysafe went public earlier this year and merged with a SPAC sponsored by Wall Street veteran Bill Foley. The stock has had a dismal ride as a publicly-traded company and recently fell to an all-time low of $3.18. It has since recovered and trades above $4. However, it is still in the penny stock category.

PSFE is a fintech penny stock

If you are looking to buy a penny stock in the fintech industry, PSFE looks like a good bet. Unlike the stocks that we discussed so far, PSFE is a mature company and is also positive on the EBITDA level. It has significant scale and processes annual volumes in excess of $100 billion. It has also been expanding internationally to spur its growth.

Earlier this year, it announced the acquisition of SafetyPay for $441 million. Founded in 2007, SafetyPay enables e-commerce transactions and is primarily present in Latin America. It had announced the acquisition of PagoEfectivo which gave it a foothold in Latin America.

The long-term forecast for Paysafe stock looks positive. The company has a market-leading position in the US iGaming market. As more states legalize sports betting it would bode well for PSFE’s long-term forecast. The fintech industry has a positive outlook over the long term and companies like Paysafe look well placed to capitalize on the opportunity.

Wall Street finds PSFE an attractive penny stock

Wall Street analysts also find PSFE a good penny stock to buy and its consensus target price of $5.5 is a 45% upside over the next 12 months. With a strong and stable business model and attractive valuations, PSFE looks among the best penny stocks to buy for 2022.

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6. PaySign (NYSE: PAYS)

Headquartered in southern Nevada, PaySign creates customized, payment solutions for its clients that are spread across various industries. It mainly targets the healthcare, pharmaceutical, hospitality, and retail sectors. Plasma donation is the business segment of the company and it pays plasma donors with its gift cards. The business took a hit amid the pandemic but the long-term forecast for the business looks positive.

PAYS is an attractively valued penny stock

PaySign had a total of 359 plasma centers at the end of September after it added three new centers in the quarter. Wall Street analysts are also bullish on PAYS stock and its median target price of $3.50 is a premium of 124% over the next 12 months. All three analysts covering the stock have rated it as a buy or some equivalent. If you are looking for a penny stock that is a play in the reopening, PAYS looks like a good bet. It trades an NTM (next-12 months) Enterprise value-to-EBITDA multiple of 14.5x which looks quite attractive.

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7. Sundial Growers (NYSE: SNDL)

Sundial Growers looks like another penny stock worth buying for 2022. Sundial Growers released its third-quarter earnings earlier this month and reported cannabis revenues of CAD (Canadian dollars) 14.4 million in the quarter, which was 12% higher than the corresponding quarter in 2020. It posted an adjusted EBITDA of CAD 10.5 million.

SNDL also announced a CAD 100 million share buyback. That might sound strange as the company is “returning cash” to shareholders in less than a year of the share issuance. Meanwhile, thanks to the stock issuance this year, SNDL is a cash-rich company.

SNDL is a penny cannabis stock with a strong balance sheet

SNDL is a penny cannabis stock with a strong balance sheet. Cannabis stocks have been weak in 2021 as legalization hopes have faded. However, if we see movement on the legalization bill in the US, cannabis stocks should bounce back. Also, the investments that SNDL is making with the massive cash on its balance sheet would also pay off in the medium to long term.

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8. Sema4 Holdings (NYSE: SMFR)

Sema4 Holdings is another good penny stock in the healthcare industry. The company listed through a SPAC merger and now trades below $5. It is a health intelligence company which is into somatic testing. The company has a strong topline growth even as its currently posting losses.

Goldman Sachs sees immense value in this penny stock

Goldman Sachs initiated coverage on SEMA4 with a buy rating and a $12 target price which would mean the stock more than doubling from these price levels. The company has a market cap of $1.13 billion and received $500 million as cash from the business combination. The stock trades at an NTM enterprise value to EBITDA multiple of only 2.95x which looks attractive.

Goldman Sachs is bullish on somatic testing and sees the market opportunity “billions in the medium-term [and] expanding at an average growth rate we expect to be mid-teens to 20% annually.”

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9. Sonendo (NYSE: SONX)

Sonendo is not currently a penny stock and trades just above $6. However, it nonetheless looks like a good long-term buy after the massive crash. It is a medical device company that produces GentleWave, a less evasive root canal treatment. It listed in 2021 only and trades at almost half of its IPO price of $12.

Sonendo is not a penny stock but looks a good buy

Goldman Sachs sees a “significant opportunity” for GentleWave. To be sure, less evasive root canal treatment looks like an impressive proposition, and the $30 target price assigned by Goldman Sachs means the stock could rise almost five-fold from these levels.

In their note, Goldman Sachs analyst Nathan Rich said that “we believe that strong initial execution could drive multiple expansion and increase confidence in the company’s significant growth and margin ramp.”

Goldman Sachs is not the only brokerage bullish on SONX stock and all four analysts covering the stock rate it as a buy. Its average target price of $19.50 is a premium of 210% from these price levels.

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10. Gee Group (NYSE: JOB)

Gee Group is a microcap company with a market cap of just above $60 million. It is a staffing company that should see better days amid the strength in the US job market. The stock has fallen sharply in 2021 but should bounce back in 2022. The US labor force participation has improved in November and more people should enter the labor market in 2022 which should help boost the demand environment for Gee Group stock.

The stock trades at an NTM enterprise value-to-EBITDA multiple of just about 5.6x which looks quite attractive. If you are looking to buy a penny stock that trades below $1, JOB stock should definitely be on your watchlist.

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Penny stocks can be risky

Meanwhile, it is always advisable to limit your exposure to penny stocks and understand the risk associated with them before investing. While penny stocks can be potential multi-baggers they can also destroy the wealth if the call goes wrong.

You can also consider an ETF that invests in such stocks. AdvisorShares Dorsey Wright Micro-Cap ETF (DWMC) is one such ETF that invests in small companies. While passive ETFs are otherwise a good investing strategy, for penny stocks it might be prudent to look at an active fund. DWMC is one ETF that can give you exposure to penny stocks. However, the ETF has a higher net expense ratio of 1.27%.

ETFs can be a good investing strategy especially for investors who lack the time or analytical skills to pick individual stocks. Especially when it comes to penny stocks, a buy-and-hold approach might not work, as say for quality large-cap stock. It might therefore be prudent to have an expert fund manager take the investment call.

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