10 Best Penny Stocks to Buy in January 2022

While penny stocks, in general, are riskier as compared to large-cap stocks, they are even riskier when the broader markets are weak. The current broader market sell-off is driven by growth tech stocks, meme and penny stocks have also plummeted.

The SEC defines penny stocks as securities that trade below $5 and are issued by small companies. Thanks to the sell-off in markets, several stocks, especially those that went public through a SPAC reverse merger, have also turned penny names. Here are the 10 best penny stocks that you can consider in January 2022.

1. Arrival (NYSE: ARVL)

Arrival is a UK-based electric vehicle company working on electric busses and vans. It went public through a SPAC reverse merger at a valuation of $13 billion. However, after the initial hype, the stock now trades at a fraction of that valuation. Startup EV companies have been under pressure and the sell-off has only intensified over the last month. The company has a differentiated business model and is building micro-factories unlike some of the other companies that build massive plants.

Arrival looks like a penny stock worth betting on

Wall Street analysts are quite bullish on Arrival stock and its median target price of $17.02 is a premium of almost 350% over current prices. The company is expected to generate revenues of $5 billion by the fiscal year 2023, which is almost twice its current market cap. If the company can deliver on the vehicle deliveries, Arrival could be a multibagger penny stock.

The outlook for the EV industry looks positive and at current prices levels, Arrival looks like a penny stock worth watching.

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2. XL Fleet (NYSE: XL)

XL Fleet is another penny stock in the EV industry that should be on your radar. 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 Fleet is a penny stock to play fleet electrification

XL Fleet is a penny stock to play the electrification of commercial fleets. 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 is trading near its 52-week lows, like fellow penny stocks. However, at these prices, it is a penny stock that should be on your radar.

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3. DiDi Global (NYSE: DIDI)

Didi had a dismal listing in the US and the company is now delisting from the US markets. The stock tumbled on delisting news and the sell-off has only gained traction amid the current stock market sell-off. Didi’s stock has fallen below $5 and it is now in the penny stock category. However, at these prices, Didi looks like a penny stock worth betting on. The listing on Hong Kong would provide liquidity to investors and also allay the concerns of the Chinese government over data privacy.

Didi is a penny stock in the ride-hailing industry

Ride-hailing and delivery companies have not really created wealth. Uber, Lyft, Deliveroo, and Grab—all trade well below their IPO price. Didi’s valuation is now way below its private market valuation. The stock has been a victim of US-Chine geopolitical tensions but a Hong Kong listing would help long-term price discovery as the company’s fundamentals would get more weightage than the controversies.

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4. Paysafe (NYSE: PSFE)

Paysafe is also a penny stock now. 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.

PSFE is a penny fintech company

Last 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.

There has been a sell-off in richly valued fintech names like Affirm, SoFi, Block, and PayPal. However, PSFE’s valuations look a lot more reasonable. If you are looking to buy a reasonably valued penny stock in the fintech industry, PSFE should be on your radar.

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5. Beachbody (NYSE: BODY)

Beachbody also went public through a SPAC reverse merger and now trades at a steep discount to the IPO price. Home fitness companies have been under pressure and Peloton also fell to multi-month lows recently. However, if you are a risk-tolerant investor, you can consider BODY stock. While Wall Street analysts have been lowering the stock’s target price, the current consensus target price implies an upside of more than 100% over the next 12 months.

BODY is a penny name in home fitness and nutrition

BODY is a penny name in home fitness and nutrition. While it is tough to call a bottom in the stock looking at the poor macro-environment, it is one penny name that should be on your radar.

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6. Senseonics (NYSE: SENS)

Senseonics looks like another good penny stock to buy in January 2022. 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 stock in the healthcare industry

Currently, the Eversense CGM has to be implanted every 90 days. The company has filed with the FDA to increase the implantable life for the new CGM 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.

FDA approval

The company provided a business update earlier this month where it said “We understand that the FDA is at full capacity managing the backlog of COVID-19 related filings creating longer than expected review timelines. We are confident a decision regarding approval of the 180-day system will be made in the coming weeks as the FDA continues to clear out the backlog.”

We haven’t heard from the company since then. However, the increase in Eversense implantable life to 180 days could be a game-changer for Senseonics and help in the adoption of the product.

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7. Desktop Metal (NYSE: DM)

3D printing company Desktop Metal also went public through a SPAC reverse merger. However, it now trades well below the SPAC IPO price and is a penny stock.  Wall Street analysts are quite bullish on the stock despite the recent sell-off. Its median target price of $11 is an upside of almost 200% from these levels. The stock even trades below the street low target price while the street high target price is $20.

DM stock is a penny stock in the 3D printing industry

The 3D printing industry holds long-term promise. Desktop Metal stock has been a victim of the sell-off in growth names. However, if you are willing to hold the stock for the long term, you can consider DM stock.

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8. Grab (NYSE: GRAB)

While Grab is not a penny stock yet, it trades just above $5. The southeast Asian delivery company has had a dismal ride as a publicly-traded company. However, most analysts believe that it is a name worth betting on.

Grab is a play on the long-term growth story in the ASEAN region. The company has a strong moat in the region and is transforming into a superapp. The long-term forecast for the company looks positive. Notably, with Chinese stocks looking risky amid the continued crackdown in the communist country, some investors might find Southeast Asia as a good bet.

Southeast Asia has a total population of 670 million and Grab sees its total addressable market rising to $180 billion by 2025. The company expects to post revenues of $4.5 billion and an adjusted EBITDA of $0.5 billion by 2025.

Analysts are bullish on Grab stock

JPMorgan is also bullish on the stock and said that the company is a “superior regional superapp.” JPMorgan initiated coverage on the stock with an overweight rating and $12.5 target price. “We initiate coverage of Grab with an OW rating and SOTP-derived Dec-22 PT of $12.5. Grab’s superior regional superapp platform is best geared to rising online consumption in ASEAN (Association of Southeast Asian Nations), in our view,” it said in its note.

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9. 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 over the last 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 would commence deliveries later this year

RIDE would commence the deliveries of its Endurance pick up later this year. 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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10. AdvisorShares Dorsey Wright Micro-Cap ETF (NYSE: DWMC)

Since penny stocks are risky and more volatile, you can also consider an ETF that invests in such stocks. 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%.

DWMC also invests in penny stocks

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.

All said, given the current macro environment, investors should do their due diligence before buying penny stocks. Also, it would be prudent to diversify the investment across multiple names and do a staggered buying.

Penny stocks have been out of favor and might continue to do so for some more time. However, the quality penny names should eventually recover.

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