The best penny stocks tend to be speculative, and the worst ones are often scams. But investors are nonetheless enticed by them because of their explosive potential gain. And I totally get it. As a new investor, I once bought shares of an up-and-coming ethanol powerhouse. The company went bankrupt before producing a drop. Trust me, you want to avoid penny stock scams like that one.
Advertising-technology company Magnite (NASDAQ: MGNI), law enforcement device company Wrap Technologies (NASDAQ: WRTC), and space-tourism company Virgin Galactic (NYSE: SPCE) all have incredible growth potential and could be excellent alternatives to penny stocks.
But a word of caution at the outset -- these businesses are very early in their journey and may not ever reach their full potential. A well-rounded portfolio can include some riskier bets like these, but the foundation should be built upon companies with more proven businesses.