Investment for the brave

PENNY STOCKS: JOHANNESBURG STOCK EXCHANGE’S BIG 2018 WINNERS

If investors can sit tight, penny stocks might be worth it – they’re 2018’s big winners on the JSE.

If investors can sit tight, penny stocks might worth it.

With the JSE ending 2018 in heavily negative territory, an 185% return in 2018 sounds like a dream. Yet that’s what South Ocean Holdings’ investors would’ve seen.

The company began 2018 trading at 28 cents per share and ended the year at 80 cents. But this was no slow and steady rise. The performance included a spike from 50 cents per share up to 80 cents on December 31 alone, a 60% jump in one day.

Investors in a counter as thinly traded as South Ocean have to accept some rather wild volatility. Table one shows how the stock experienced a number of substantial one-day movements in 2018.

TeleMasters

Another stock that kept investors on the hop was TeleMasters Holdings, ending the year 130% up, after a wild ride.

The counter started 2018 at 50 cents per share. It had reached 64 cents per share by the start of February 22, but closed that day at 45 cents, a 29.7% drop.

On April 10, the share opened at 44 cents, and closed at R1.15.

This 161.4% one-day gain might seem eye-watering, but it wasn’t TeleMasters’ first such incidence. In 2017, the shares jumped from 31 cents to 75 cents at the start of June and dropped back to 29 cents days later, before spiking again to 75 cents before month end.

Like South Ocean, TeleMasters’ stock was also boosted by a transaction near the end of 2018. On December 12 the shares moved from 70 cents to R1.15, where they ended the year. That 64.3% jump accounted for over half of its fullyear gain.

Verimark

Verimark was another penny stock that delivered a positive calendar year performance. It ended 2018 up 77.2% after climbing from 79 cents to R1.40.

It’s slightly more liquid than South Ocean and TeleMasters, but it still bounced around significantly last year. Table two shows the variation in closing prices for each month.

Liquidity risk

These were three of the JSE’s best-performing shares last year, but their investors had to stomach a great deal of volatility, part and parcel when investing in very small companies with very low trade levels.

What these penny stocks are worth is a moving target. The prevailing share price isn’t necessarily an indication of what you can sell them for. From day to day the price at which they change hands can differ substantially.

If you can sit tight, you can turn it to your favour and earn a premium if there are no other sellers.