Penny stocks are known for their low price, which can make them highly sensitive to any bit of news surrounding the stock. One thing that investors frequently look for when considering which penny stocks to sell is to look at investor sentiment. Specifically, are insiders selling the stock.
One motto of Peter Lynch, the famous investor and mutual fund manager, was that investors have many reasons to sell a stock, but they only have one reason to buy them. The point was to remind investors they shouldn’t put undue focus on news about company insiders selling shares of their company’s stock.
This is good advice to follow for many stocks, but it’s not a one-size-fits-all approach for investors. This is particularly true for penny stocks.
Remember, these stocks can move in either direction quickly. Even a small move in price can cause investors to lose a significant amount of money.
The companies on this list of penny stocks to sell present investors with significant concerns about their business models. And for that reason, until they prove themselves, it’s safer to keep these stocks out of your portfolio.
Opendoor (OPEN)
Opendoor (NASDAQ:OPEN) is one of the best performing stocks in 2023. At the time of this writing, OPEN stock is up 193%.
But looks can be deceiving. Prior to May 2023, the stock was essentially trading flat. The catalyst has been artificial intelligence. AI powers Opendoor’s platform. However, as Ian Bezek wrote recently, Opendoor’s AI algorithm has already been proven to have significant shortcomings.
That may explain the significant amount of insider selling that’s been occurring with OPEN stock in the last month. To be clear, there are times when company executives are required to sell stock. And most of these transactions fall under Rule 10b5-1 specifications.
But when you see a large volume of a company’s stock being dumped by multiple insiders, it’s a reason for concern. OPEN stock has had no insider buying even when the stock was trading for just over $1.
AMC Entertainment (AMC)
AMC Entertainment (NYSE:AMC) is next on this list of penny stocks to sell. I can’t say I’m terribly surprised. AMC stock is down over 70% in the last 12 months.
For at least a moment, if appeared that the army of AMC investors known as “the Apes” may have won the meme stock battle. The business model remains under pressure even as many individuals are returning to the movie theater.
They’re not returning fast enough, nor in enough volume to help AMC retire its significant debt load.
In fact, the company has taken the unpopular step of calling for a reverse stock split to raise equity. To be clear, there are times when penny stocks have to undergo a reverse stock split to maintain listing requirements.
AMC stock has been trading above a dollar. This is to generate more cash and it’s generating selling activity by a major investor who has dumped over 50,000 shares in 2023.
SmileDirectClub (SDC)
The last stock on this list of penny stocks to sell is SmileDirectClub (NASDAQ:SDC). The tele-dentistry company began publicly trading in September 2019.
SDC stock got an almost immediate boost from the Covid-19 pandemic which forced individuals to find an alterative to traditional orthodontistry.
Not surprisingly, SmileDirectClub was one of those alternatives. The problem is that people are back to traditional orthodontists. And SDC’s revenue is dropping considerably on a year-over-year basis. That leads to questions about when (or if) the company will ever be able to turn a profit.
Adding fuel to this fire is a recent court order that is forcing the company to release 17,000 dissatisfied customers from nondisclosure agreements that currently prohibit them for leaving negative reviews about the company’s products.
SDC stock is down just under 60% in the last 12 months and is now trading as a penny stock for just 45 cents a share as of this writing.
While the amount of insider selling hasn’t been large, it would be more encouraging to see some insider buying as a vote of confidence.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
