Penny shares never go out of fashion. Despite their volatility, these stocks continue to win investors’ hearts. Due to the potential explosive return they offer, penny shares are always on my watch list. Let’s explore two of them that I think have the best potential for my portfolio.

Pharma penny shares to watch

One of the best penny shares, in my opinion, to watch in 2022 is in the biotech sector. The pandemic has given birth to many new companies, which have risen substantially.

CymaBay Therapeutics (NASDAQ:CBAY) is a clinical-stage biopharmaceutical company focused on developing therapies to treat metabolic diseases. The penny stock peaked at $9 during the last quarter of 2020, but today it’s closer to $2.80. In light of the past performance of this penny stock, the earnings report due in March-2022 is keeping a lot of investors, like me, at bay about their investment decision.

CymaBay currently has no revenue-generating products in the market. That obviously adds a lot of risk to this investment. But its lead project, Seladelpar, is in phase three trials.

It’s worth mentioning that this drug has received Breakthrough Therapy Designation by the FDA. In my opinion, this indicates that this drug has the potential to become a cash cow for the company. As a result, assuming the drug makes it to market, I’d expect earnings to rise considerably over the long term. Therefore, this biotech company is on my list of penny shares to watch in 2022.

A penny share to watch in the EV sector

Second on my watch list of penny shares is Electrameccanica Vehicles Corp (NASDAQ:SOLO). The company is known for its three-wheeled flagship vehicle titled “SOLO”. Solo is a one-person electric vehicle that has been launched after around five years since its original announcement.

After the successful delivery of the commercial SOLO electric vehicle (EV), the company is ready to ramp up production. In line with increased demand, the SOLO manufacturer is all set to complete its new US Assembly and Engineering Technical Center Arizona by mid-2022. This new facility will increase production capacity by 20,000 vehicles annually.

Currently trading at around $1.80, the stock of the EV company touched the peak of $10.81 in the last quarter of 2020. Moreover, the government announcement of a $1trn infrastructure bill gave a huge boost to the stock of the company.

Electra Meccanica is a fairly new enterprise and is still working towards establishing solid space for itself in the EV sector. Moreover, the company is consistently incurring losses since its inception. In fact, the EV start-up has openly acknowledged “about generating minimal revenue”. But looking at the performance of other start-ups in the industry, I believe Electrameccanica is right on track. That’s why I’m keeping an eye on this penny share in 2022.

Final thoughts

Profitable investing is about entering and exiting the market at the right time. Moreover, investing in penny stocks requires a diligent investment approach to keep up with the rapid changes in the market.

The above-mentioned penny shares to watch this year have shown exceptional volatility in recent years. And this is unlikely to change until they become proven businesses. But I’ll be watching these penny shares closely. After all, being an early investor can generate enormous returns over the long term.

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies, assets, and strategies mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.