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Were you brave enough to invest in these penny stocks in 2018?

The JSE’s big winners last year – not for the faint-hearted.

With the JSE ending the year in heavily negative territory, a return of 185% in 2018 sounds like a dream. Yet that is what investors in South Ocean Holdings would have seen last year.

The company, which owns firms that manufacture low voltage electrical cables and other electrical goods, began the year trading at 28 cents per share. At the end of December, it was at 80 cents.

It was, however, by no means a slow and steady rise to get there. The performance included a spike from 50 cents per share up to the 80 cents level on December 31 alone. That is a jump of 60% in a single day.

This was a particularly extreme event, but investors in a counter as thinly traded as South Ocean have had to be willing to accept some rather wild volatility as a matter of course. The table below shows how the stock experienced a number of substantial one-day movements, both positive and negative, in 2018.

South Ocean share price movements, 2018
Date Opening price Closing price Move
January 18 44 cents 27 cents -38.64%
March 9 22 cents 35 cents 59.09%
June 7 48 cents 32 cents -33.33%
July 5 39 cents 50 cents 28.21%
August 20 55 cents 36 cents -34.55%
August 31 40 cents 50 cents 20%
September 20 50 cents 40 cents -20%
December 31 50 cents 80 cents 60%

Source: Profile Data & Moneyweb

TeleMasters

Another stock that kept investors on the hop was TeleMasters Holdings. Shares in the telecommunications and cloud-based solutions service provider ended the year 130% up, but it was a wild ride getting there.

The counter started the year at 50 cents per share. This was way off the highs of R1.50 per share it reached back in May 2014.

It had reached 64 cents per share by the start of February 22, but closed that day at 45 cents. That was a single day drop of 29.7%.

This was however more than made up for less than two months later. On April 10, the share opened at 44 cents, and closed at R1.15.

This one-day gain of 161.4% might seem eye-watering, but it was by no means the first time that TeleMasters shares had done something like this. In June 2017, the shares jumped from 31 cents to 75 cents at the start of the month, dropped back to 29 cents a few days later, before spiking again to 75 cents before the month was out.

Like South Ocean, TeleMasters stock was also boosted by a transaction near the end of last year. On December 12 the shares moved from 70 cents to R1.15, which is where they ended the year. That 64.3% jump accounted for more than half of the counter’s full year gain.

Verimark

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

The counter is slightly more liquid than South Ocean and TeleMasters, but it still bounced around significantly for a lot of the year. The table below shows the highest and lowest closing prices in each month of 2018, indicating how it went through a number of ups and downs over this period.

Verimark share price, 2018
  Low High Variation
January 70 cents 85 cents 21.43%
February 71 cents 87 cents 22.54%
March 74 cents 92 cents 25%
April 80 cents R1.12 40%
May R1.02 R1.20 17.65%
June 98 cents R1.20 22.45%
July 83 cents R1.06 27.71%
August 88 cents R1.04 18.18%
September 95 cents R1.06 11.58%
October 91 cents R1.10 20.88%
November R1.03 R1.38 33.98%
December R1.35 R1.40 3.7%

Source: Profile Data & Moneyweb

Liquidity risk

These were three of the best-performing shares on the JSE last year, but in all three cases investors had to stomach a great deal of volatility. That comes with the territory when investing in very small companies where trade levels are very low.

What investors should also learn from this is that what these penny stocks are worth is a moving target. The prevailing share price is not necessarily an indication of what you can actually sell them for. From one day to the next, the price at which they change hands can differ substantially.

This is not necessarily a problem if you have the time and patience to wait for your asking price to be met. However, if you own any of these shares and need to sell them in a hurry, you may have to settle for a price well below where they were last sold as there are not that many buyers.

That is the nature of liquidity risk. If you have the ability to sit tight, you can turn it to your favour and earn a premium if there are no other sellers in the market. When there are no buyers, however, it can cost you.

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More rear view mirror investing. Let’s tell all the people ALL the issues they SHOULD HAVE DONE. You call this journalism?????????SAD

Yip, bit of a waste of time article. Basically the message is small stocks don’t have much liquidity and can jump around alot, feels like this should be on news24 or something like that, not a relatively sophisticated money site.

For 2019 I am sure there are many more possibilities…but for now its Aveng, Trans Hex and Steinhoff for me. That is all.

And again you missed the point of what do the fundamentals say about the mentioned company, if you had a look at Verimark you would see that it is a cash rich company with a good cash flow and minimum debt(undervalued). I bought into the company when the share had been moving at R0.97c, i honestly don’t like the words trade and investing placed under one sentence, two different meanings and people “the herd” still think it is the same meaning.

Patrick, ”backward trading is an exact science” !

Patrick, you may want to bone up on the meaning of ‘investing’. Speculating in penny stocks is not it.

Defiantly. Penny stocks are a gamble. Rather buy good quality.
A question how many stocks were tipped? Some of the penny stocks were ignored last year. It was hard enough to pick winners from quality stocks.

I bought Verimark last year (small amount) after I got a product from their store to chop onions that I really like.

The website and its subscription is a total waste, with articles written way below par ! what a joke !

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