Investor Alert

March 30, 2021, 11:50 a.m. EDT

How Penny Stocks Are Taking Over Reddit, Facebook & Twitter

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Mar 30, 2021 (Penny Stocks via COMTEX) -- Penny Stocks Are A Hot Topic Right Now

What are the best penny stocks to buy right now? Ask that question a year ago, and you'd see traders start scrambling for information. Searching for things like company filings, news, trial data, patents, etc., are all part of this due diligence or "DD" process. But in 2021, ask someone what the best penny stocks to buy are, and they'll likely hit social media first to see what people are discussing.

Social sentiment has become a key factor for many retail traders this year. Thanks in part to the big breakout of GameStop (NYSE: GME ), eyes have been opened to the impact that social media can have. It may have started with GME but it certainly hasn't ended there. Now entire ETFs have begun basing their investment model on social buzz. Ironically, the first to do so was VanEck's Social Sentiment ETF ( NYSE: BUZZ ).

Social Buzz Goes Mainstream

According to its investment thesis, "VanEck Vectors(R) Social Sentiment ETF (BUZZ) seeks to track, as closely as possible, before fees and expenses, the price and yield performance of the BUZZ NextGen AI US Sentiment Leaders Index (BUZZTR), which is intended to track the performance of the 75 large-cap U.S. stocks which exhibit the highest degree of positive investor sentiment and bullish perception based on content aggregated from online sources including social media, news articles, blog posts, and other alternative datasets."

[Read More] Why Penny Stocks Are The Focus For Reddit Investors In 2021

Call it what you will but when it comes to penny stocks, Reddit, Facebook, Twitter, and many other platforms are at the top of the checklist for DD. This has also created a unique situation for traders. Those who've been in the market long enough understand the risks involved with using social media as a resource for research. You'd hope that people are forthcoming but there's been plenty of instances of fraud and pump and dumps stemming from overly hyped stocks.

Penny Stocks & Social Media

There's a long history of penny stocks breaking out because a few large social media accounts talked about them. But before you think about buying based on a Twitter handle, stop; there's no substitution for quality research. Even if it takes you an extra few minutes to understand why something is moving, it's for the better.

A few weeks ago, a Twitter user was caught red-handed accused of spreading "false and misleading" information. According to the Securities & Exchange Commission, the Twitter user touted the stock of Arcis Resources Corporation. The underlying stock was trading for less than half of a penny.

Since the incident, no firm is making a market for the stock. One of the main issues was that the company hadn't made a given update or made a filing in years. Yet, the Twitter user spread false information to the sea of followers the user had amassed.

Needless to say, when we caution about trending penny stocks that are "ghost ships," this is part of the risk to factor in. Since there isn't much information on these defunct companies, anyone with authority or a following can become the "voice for the people"…they must know something because they have so many followers, right?

[Read More] Penny Stocks Are Hot, Will Ghost Ships Force Traders To Walk The Plank?

Well, in this case, the user took advantage of the following as they pumped up the market, then sold shares to secure profit by "using social media to deceive investors," according to the SEC.

Are Penny Stocks On Reddit A Buy?

This is something to be well-aware of if you're looking for penny stocks on Reddit or other social media channels. This doesn't mean that all of the commentaries online is bad or that it should be avoided. But it does mean that you should do more research than just reading a post on social media.

With this, let's take a look at a few of the trending Reddit penny stocks today. I won't give you a history lesson on these but let's look beyond the social media hype and check out what some of these companies have going on.

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