5 Best Canadian Penny Stocks

Penny stocks are considered a high risk-high reward investment. Canadian penny stocks trade at 5 Canadian dollars a share or less. They tend to be small-cap stocks and include start-ups, companies that aren’t profitable and companies in decline.

Investors are drawn to penny stocks by their attractive prices and because they believe in their potential for significant upside. Bear in mind that Microsoft, Nvidia and Amazon all traded at under $5 at one time. Investors need to remember, though, that penny stocks are often trading at a low price for a reason and selecting the best penny stocks to buy takes skill. However, with thorough research, they can find attractively-valued gems that can help drive wealth.

We picked five Canadian penny stocks that all trade on the Toronto Stock Exchange (TSX) for less than 5 Canadian dollars a share but have solid revenue growth and profitability. Thanks to trends that support their business, these stocks all have the potential of generating significant wealth to those that take the risk and buy their shares.

See our picks below:

Comparison of the top penny stocks in Canada

Ticker on TSX	Company	Performance YTD
GGD	GoGold Resources	+15.04%
BITF	Bitfarms	-9.28%
TSND	TerrAscend	-7.41%
BB	BlackBerry	-17.03%
ATH	Athabasca Oil	+16.31%

An in-depth look at these top penny stocks

Penny stocks carry significant risk, but with thorough analysis of the companies that issued those stocks you can mitigate those risks. All five of the top-ranking Canadian penny stocks that we selected have a decent track record of revenue growth and profitability.

1. GoGold Resources: Average 10-year annualized return of 0.13%

GoGold Resources (TSX: GGD), whose headquarter is in Halifax, explores, develops and produces gold and silver from its mines in Mexico. It’s already producing from the Parral Tailings mine in the state of Chihuahua and has two exploration projects in the state of Jalisco, the Los Ricos North and Los Ricos South projects.

The prospects are good because the prices of gold and silver, considered safe haven assets, have climbed over the past few years. Each metal hit a 5-year high last month. This is in spite of high interest rates, which often tamp down enthusiasm for precious metals that, unlike bonds, do not pay interest.

In the second quarter, GoGold’s revenue rose 17.2% year over year to $8.94 million, while net income climbed 138% to $1.27 million. The driver was increased production from its Parral Tailings mine as well as higher gold and silver prices.

2. Bitfarms: Average annualized 10-year return of 8.7%

The Toronto-based Bitcoin mining company, Bitfarms (TSX: BITF) has ambitious growth plans. It has become more efficient, and said it plans to further improve its hashrate (a measure of how many calculations a mining machine can perform per second) by 223%, and energy efficiency by 40% this year. The company develops, owns, and operates 12 vertically integrated mining farms across Québec, Paraguay, Washington state in the US and Argentina.

The case for continued growth is intertwined with the success of Bitcoin, which over the past decade, has outperformed both gold and leading stock indices. The company’s attraction was made obvious when it turned down a $950 million takeover bid from Riot Platform’s bid in April. Riot Platform said it was the single largest shareholder of Bitfarms, owning 9.25% of its shares. It’s worth noting, though, that Bitfarms didn’t close the door on other acquisition offers, and another buyout bid would likely increase the value of its stock to its current shareholders.

In the first quarter, Bitfarms had revenue of $50 million, up 9% from the prior quarter, and rising 67% year over year. It also increased its gross mining margin to 59%, compared to 52% in the previous quarter and 41% in the same period a year ago. It also showed progress toward profitability with a net loss of $6 million, per-share loss of $0.02, compared to a net loss of $57 million, or $0.19 loss per share in the prior quarter.

3. TerrAscend: Average annualized 10-year return of 7.07%

The Toronto-based cannabis company has been able to grow revenue while trimming its losses. TerrAscend (TSX: TSND) is the first multistate operator to move from the CSE to the more prestigious TSX bourse. It has a total of 38 retail outlets, including 20 in Michigan, five in California, six in Pennsylvania, four in Maryland, and three in New Jersey, through TerrAscend Growth Corp., and retail cannabis operations in Canada through TerrAscend Canada, Inc.

The potential for future growth of US cannabis sales is huge, even if the prospects of federal legalization of cannabis in the US are likely to be years away. With Pennsylvania and Ohio potentially expanding to adult-use sales, TerrAscend could easily see growth there. The rescheduling of cannabis at the federal level would help ease some tax burdens for TerrAscend as well, as it would allow some business deductions that are not currently allowed.

The company had $80.6 million in revenue in the first quarter, up 16.1% over the same period last year, helped by its acquisition of four dispensaries and the beginning of adult-use sales in Maryland. It had a net loss of $14.9 million, narrowing from $19.2 million in the same quarter a year earlier. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $16.2 million, up 20.1% year over year. This was the seventh consecutive quarter of positive adjusted EBITDA.

4. BlackBerry Ltd.: Average annualized 10-year return of -12.31%

The former smartphone darling of the early aughts is now a cybersecurity software and services company. Based in Waterloo, Ontario, BlackBerry (TSX: BB) and (NYSE:BB) has been an occasional meme stock, jumping 23.9% in a two-day period in mid-May, but it’s not just hype. There are valid reasons to be bullish about the company’s future. Its focus on Internet of Things (IoT) management products and endpoint security software appears to be paying off.

BlackBerry’s fiscal 2024 revenue rose 30% to $853 million. Its full-year loss narrowed to $0.22 per share compared to a loss per share of $1.35 in the previous fiscal year. BlackBerry reports earnings in US dollars and also trades on the . The big driver for the improvement was the company’s IoT division, which had a record fiscal fourth quarter with $66 million in revenue. BlackBerry said its QNX software royalty backlog rose 27% year over year to $815 million as a result of design wins. The QNX software is embedded in more than 235 million vehicles worldwide and helps with driver assistance systems, domain controllers and infotainment systems.

Though its cybersecurity division isn’t growing as much as the IoT division, the company should benefit from the rollout of 5G networks as companies seek a safe network to connect devices to the internet. The stock continues to be depressed because the company is known more for its decline – from a high of $147 a share when it was a leading cell phone manufacturer in 2008. It wasn’t able to adapt once the iPhone and Android phones emerged. However, it has already morphed into a different type of company and at less than $3 a share, is again attractive considering its growth potential.

There is some possibility that the company could spin off its IoT unit but it backed away from that plan late last year.

5. Athabasca Oil Corporation: Average annualized 10-year return of -4.32%

The Calgary-based small-cap is a producer of heavy thermal oil from rock by a steam injection process. Athabasca Oil (TSX: ATH) has seen its production increase and has recently closed on a transaction to create Duvernay Energy Corp., a subsidiary that combines Athabasca’s Duvernay assets in an emerging oil and liquids-rich gas formation in the Western Canada Sedimentary Basin and Cenovus’s Kaybob Duvernay assets. Athabasca will own 70% of the subsidiary with the rest belonging to Cenovus.

In the first quarter, net income totaled $38.6 million, compared with a loss of $56.6 million in the same quarter a year ago. It had EPS of $0.07 after a loss of $0.10 per share in the first quarter of 2023. Revenue was up by 6.7% year over year to $297.6 million. The improved financials have raised the stock by more than 63% over the past year, but it’s still trading below CAD 5.

Athabasca foresees that its production will expand at a compound annual growth rate of 7% over the next three years. Its production costs aren’t expected to rise much, so its margins would likely increase with the improved production.

Analysts project that the share price will rise to CAD 6.14 by this time next year, a 26% upside. One positive sign is the board was encouraged enough by the company’s financials to undertake its first stock buyback program and has already purchased $97 million worth of its stock.

What are penny stocks?

Penny stocks are shares of public companies, usually small-cap stocks, that trade for a low price per share. Typically, this is less than $5 per share, though the exact definition can vary by market. They can appear attractive to inexperienced investors because of their low price tag, but penny stocks are also associated with a greater degree of risk than the stocks of more established companies.

While we’ve focused on penny stocks that trade on the Toronto Stock Exchange, many penny stocks trade on smaller exchanges, including the over-the-counter (OTC) market. OTC stocks aren’t subject to the same listing requirements as exchange-traded stocks, which can mean there’s less information about such companies. Even with the penny stocks on the TSX, there is generally less coverage on the stocks by the media or analysts, so investors need to do more of their homework before plunging into buying penny stocks.

It’s also important to realize that penny stocks, because of their low share prices, can be more volatile than other stocks. The prices of their shares can swing a great deal in a short period of time and while that can create an opportunity for investors, it can also mean big losses in some cases.

Pros and cons of investing in Canadian penny stocks

Here are some of the pros of investing in penny stocks:

High Potential Returns: The biggest reason to consider penny stocks is their potential for explosive growth. A small company experiencing a breakthrough could see its stock price soar, leading to significant gains for investors.

Low Entry Price: Because they trade at low prices per share, you can buy a large number of shares with a relatively small investment. This allows you to magnify potential gains if the stock price increases.

Under-the-Radar Gems: Sometimes, promising young companies with bright futures trade as penny stocks before they gain mainstream attention. By doing your research, you could potentially uncover a hidden gem before it takes off.

Hedging Potential: Penny stocks in certain industries can act as a hedge against broader market downturns. For example, penny stocks in the natural resources sector might rise in price if there’s a downturn in the technology sector.

There are, however, significant risks in investing in penny stocks:

High Volatility: Penny stocks are known for their wild price swings. Even positive news can cause their prices to jump dramatically, but negative news or a lack of trading activity can send them crashing. This volatility makes it hard to predict their future value and exposes you to the risk of significant losses.

Fraudulent Schemes: Penny stocks are often a prime target for pump-and-dump schemes. In these scams, fraudsters artificially inflate the price of a stock through misleading promotions and then quickly sell their shares at a high profit, leaving unsuspecting investors holding worthless stock.

Lack of Information: Penny stocks are often issued by small companies with limited public information available. This makes it difficult to research the company’s financials, business model, and future prospects. Without proper research, you’re investing blindly.

Struggling Companies: Many penny stocks have limited track records or have a history of losses. These companies may be using unproven technologies, lack a clear path to profitability, or face significant challenges in their industry.

Penny stocks FAQs

How to invest in penny stocks in Canada

First, check to see if your brokerage account will allow you to trade in penny stocks as some put limits on penny stocks or charge extra fees for penny stock trades. Make sure the stock is registered with the proper regulators to avoid unregistered scams.

As with any stock, but even more so, you need to do your own research on a penny stock, looking at a company’s earnings reports going back a few years. Make sure the company is on solid financial footing and appears to be headed in the right direction. Be especially cautious at first. It’s tempting to buy large blocks of shares of penny stocks because they’re inexpensive, but it makes sense to proceed slowly with smaller buys at first because of the volatility around penny stocks.

Are penny stocks a popular investment?

Penny stocks are generally not popular with established investors or with financial advisors because of the risks they pose. The potential for pump-and-dump schemes is higher with stocks with low price shares, because it doesn’t take as much to influence a stock. They are, nonetheless, popular with investors who are looking for high potential share price growth and have high tolerance for risk. There’s also the concern that the low volume that is typical of penny stocks could make it harder for investors to sell their shares down the line, even if the stock does rise. Sadly, most penny stocks don’t appreciate in share value all that much, though there are exceptions.

Do I need to pay tax on penny stocks in Canada?

Yes. It’s important to consult a tax professional on your particular tax situation, but in generally penny stocks are taxed at the capital gains tax rate, which means you pay taxes on 50% of the capital gain. However, penny stocks that are traded on OTC markets generally cannot be held in registered accounts like TFSAs or RRSPs. Profits from these accounts are tax-sheltered, but penny stocks typically don’t qualify for that tax benefit.

Methodology: How we made our picks

To find the best Canadian penny stocks, We focused first on stocks that were trading for less than $5 per share. From that group, we looked for companies with good long-term prospects. GoGold Resources, Bitfarms and Athabasca all fit that criteria because the cost of gold, oil and the increased interest in cryptocurrency is expected to continue to rise. TerrAscend, thanks to the strong long-term potential for cannabis retailers and Blackberry, thanks to its switch to focusing on the Internet of Things and cybersecurity, also should benefit from tailwinds.

On top of that, all five stocks, at least in their most recent quarter, are growing revenue and improving their earnings, even if GoGold Resources and Athabasca Oil were the only two companies that are actually turning a profit. It makes sense to get in on stocks that are in the process of a turnaround before everyone else realizes they are becoming profitable.