Why Bulls Shouldn't Ignore These 3 Penny Stocks

When it comes to picking stocks, some people gravitate toward lower-priced names -- often called "penny stocks" -- for their affordability and the potential for big upside. With that in mind, we decided to take a look at three stocks under $5 with the potential to rally -- drugmaker Acura Pharmaceuticals, Inc. (NASDAQ:ACUR), tech issue Neonode, Inc. (NASDAQ:NEON), and "FarmVille" parent Zynga Inc (NASDAQ:ZNGA).

• ACUR is surging today, up more than 22% at $1.01, and fresh off an annual high of $1.35, thanks to a licensing and development agreement with Bayer Healthcare LLC. In fact, the shares have now more than doubled on a year-to-date basis. However, there's plenty of potential for Acura Pharmaceuticals, Inc. to sustain its momentum, considering current short interest levels. During the most recent reporting period, short interest nearly quadrupled, and would take more than eight sessions to buy back, at ACUR's average daily trading levels.


• Despite being down 3.6% this afternoon at $3.44, NEON has been in rally mode since touching a multi-year low of $1.72 in mid-October -- doubling over that time frame. Also, the stock is consolidating atop its supportive 100-day moving average, from which it bounced in mid-March. Should Neonode, Inc. continue to trek higher, short sellers may be forced to hit the exits, creating tailwinds. Specifically, 22.5% of NEON's float is sold short, representing over four weeks' worth of pent-up buying demand, at typical daily volumes.


• ZNGA is up 12% in 2015 to trade at $2.98, and has been consolidating around the $3 level in recent weeks. Nonetheless, 13 of 17 analysts tracking the shares consider them a "hold" or worse. In other words, the door is wide open for potential bullish brokerage notes to intensify buying power. What's more, at Zynga Inc's average pace of trading, it would take one week to repurchase all of its shorted shares -- meaning short-covering activity could serve as another catalyst higher.