3 trending penny shares: hit, hold or fold?

If I had to buy, hold or sell penny shares SYME, 4D Pharma and Novacyt, what would I do? Fool UK contributor Joe Clark shows his hand.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

UPDATE: The original version of this article mistakenly stated that [email protected] Capital was listed on AIM rather than Main Market.

Three ‘trending’ penny shares have had some significant catalysts this month, ranging from a suspension of shares to a new listing in the US on the NASDAQ.

Recently, I pitted three FTSE 100 portfolio staples against each other and now I would like to do the same with 4D Pharma (LSE: DDDD), Novacyt (LSE: NCYT), and [email protected] Capital (LSE: SYME).

I am going to look at these shares as if I were in a casino and I was dealt all three. What company would I hit again (buy more), hold (keep) and fold (sell)?

Hold

Novacyt, a medical diagnostics company, was a star of the stock market last year – and even with the recent pull back to 720p, it is still 400% up on the year. The Novacyt share price sold off after its earnings report even though it had very positive sales growth to £277m from £11.5m in 2019. It wasn’t numbers but guidance that unsettled investors, as it stated that it expects sales of Covid-19 products to be strong for most of 2021 but it wasn’t clear beyond that.

I am not sure how Novacyt will utilise its increased cash reserves or its specialism in Covid-19 testing, therefore it is hard to wage where fair value is. I do believe that Covid-19 testing is here for the foreseeable future. Mr. Dealer, I’ll hold.

Fold

[email protected] Capital (SYME) is a fintech firm; it allows companies to make money from their inventory. The idea is to allow businesses to generate cash flow from their unsold goods.

At the end of January, SYME requested a suspension of the listing of its shares pending publication of its results which meant for over a month, investors could not buy or sell SYME shares. After due diligence from the FCA, the shares recently started trading again at around 0.55p. Due to its true penny share status, there is arguably plenty of upside if SYME can prove its business model to be profitable. However, this would be a speculative investment and shares this size can be illiquid, which generally means wider bid-ask spreads, and greater price volatility. Mr. Dealer, I fold.

Hit

4D Pharma is a company pioneering development in the area of the human microbiome (the bacteria found in our gut).

Recently, 4D Pharma completed a merger with a US investment vehicle, which provides the company with a quote on the tech- and biotech-focused NASDAQ stock market under the ticker $LBPS. By dual-listing in the US, this should introduce the firm to a new pool of prospective investors.

Key figures within the business own 12.7% of the company which I believe demonstrates their confidence in 4D Pharma shares. Currently, 4D is not profitable and it is not forecast to become profitable over the next three years. Trading at 130p, this is a long-term play for me. Mr. Dealer, I’ll buy more.

Penny shares: risk v reward

Companies listed on the Alternative Investment Market (AIM), such as Novacyt and 4D Pharma, are provided with more regulatory flexibility than those on the main market so you can expect greater volatility. However, with careful diligence, the AIM can be a lucrative market for discerning stock pickers.

Thus, when faced with the decision to hit, hold or fold, I would hit 4D Pharma, hold Novacyt and sell SYME.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Joseph Clark owns shares in Novacyt and 4D Pharma. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bearded man writing on notepad in front of computer
Investing Articles

Is there still time to buy Scottish Mortgage shares?

The Scottish Mortgage share price has risen strongly in recent weeks. Should I pile into the FTSE 100 momentum stock…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Why I’d start buying shares with £250 today not £20,000 in future!

Is it worth waiting to start buying shares until one has more money to invest? Our writer doesn't think so…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

I’ve bought Diageo shares to boost my long-term passive income!

I plan to hold on to my Diageo shares well into retirement. Here's why I think it's a top stock…

Read more »

New virtual money concept, Gold Bitcoins
Investing Articles

Down 61%, are Argo Blockchain shares worth buying?

Argo Blockchain shares have tumbled in value. As a shareholder, Christopher Ruane considers what might come next for the business…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 UK dividend stocks with yields over 10%

These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…

Read more »

Couple relaxing on a beach in front of a sunset
Investing Articles

I’d start buying shares for passive income with this pair

Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Here’s the Shell dividend forecast through to 2024

The Shell dividend is still nearly 50% below 2019 levels. Will the oil giant use record profits to rebuild its…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 FTSE 100 stocks I think Warren Buffett might love!

Warren Buffett made his fortune thanks to the success of US shares. But here are three FTSE 100 stocks I…

Read more »