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Penny Stocks to Buy – 4 Hot Energy Picks Less than a Gallon of Gas

Buy Biofuel, Rentch, Magellan and Abraxas,


Penny stock investing is exciting because these investments by nature have tremendous profit potential. Low priced small cap stocks don’t have to move the needle very far to see a huge jump in share price and deliver big gains to investors. What’s more, penny stocks are often agile and quick to adapt because of their small operations and can see groundbreaking changes that deliver big returns in a matter of months – as opposed to blue chip stocks that take years to roll out growth strategies.

There’s no doubt that the energy sector is in rough shape right now, with the BP crude oil spill wreaking havoc in the Gulf of Mexico. But don’t count the entire industry out. There are penny stocks to buy right now in the sector that have big investment potential.

Simple trading strategies apply to penny stocks too, and one of my favorite rules of thumbs is to “follow the money.” As you will see, many of these penny stock picks have seen huge buying pressure recently. That said, other trading strategies aren’t as good of an indicator for penny stocks. Though PE ratios are helpful when it comes to blue chips, try not to put too much stock in them for these small stocks. They simply don’t have the raw size in their earnings or share price to make comparisons accurate.

But enough talk! Here are four of my favorites right now, all of which get a B grade or “buy” in my proprietary stock grading tool, Portfolio Grader:

BioFuel Energy Corp. (BIOF) is a perfect example of my penny stock strategy. BIOF produces and sells ethanol and its byproducts through its two production facilities located in the Midwest. Each site has a capacity of approximately 115 million gallons per year, giving Biofuel Energy Corp. a big foothold in the emerging ethanol marketplace and green energy industry. BIOF stock has flopped in 2010, down about -40% year-to-date – but this penny stock is still up almost +150% since September 2009! If BIOF stock rebounds from its current valuation of around $1.70 to the $4 share price it saw at the beginning of the year, investors would more than double their money in this penny stock. BioFuel Energy gets a B grade in Portfolio Grader overall, and highest marks for its strong cash flow.

Rentech Inc. (RTK) is another green energy pick, cashing in on its patented Rentech Process and the Rentech-SilvaGas biomass gasification technology. It’s a dirty business, producing biofuel, fertilizers and other chemicals from organic waste products. This penny stock is trading for $1 a share, down considerably from its peak of nearly $2.50 in 2009. But a turnaround could be in the works and RTK stock may be near the bottom right now. My Portfolio Grader tool gives the stock a B grade or “buy” based on strong buying pressure from investors and improving sales growth.

Magellan Petroleum Corporation (MPET) is a more conventional energy stock, and is engaged in the sale of oil and gas, as well as exploration. The company primarilty owns interests in Australia and the United Kingdom. Shares are up +20% year to date and still going strong, giving this penny stock +76% gains in the last 12 months – over three times better than the broader market. I give MPC top marks for its earnings growth, and rate the stock a buy overall. In May, MPET reported that its fiscal Q3 profit quadrupled – so though up the PE ratio of this stock may appear big right now, it appears MPET is creating enough growth to drive share prices even higher.

Abraxas Petroleum Corp. (AXAS) is an independent energy company primarily engaged in the development and production of oil and gas across the U.S. The on-shore oil company hasn’t had to deal with as much of the fallout of the Gulf oil disaster. And with my top rating in Portfolio Grader for sales growth and for buying pressure, AXAS appears to have the wind at its back. Shares of this penny stock are up a stunning +50% so far in 2010 and +150% in the last year, but are still cheap at just under $3 a piece as of this writing. Simple trading strategies that involve following the money would really connect well with the performance of AXAS.

Editor’s note: A previous version of this story had highlighted OMNI Energy. The stock has been acquired by Wellspring Capital and is being taken private.

As of this writing, Louis Navellier did not own a position in any of the penny stocks named here.

About Portfolio Grader: Every Sunday, renowned growth stock expert Louis Navellier runs a fundamental analysis on the top 5,000 Wall Street companies. Armed with this research, Navellier offers a rating for each company reflected as a simple letter grade, with A being “strong buy” and F being “strong sell.” Portfolio Grader’s stock data is free and open to the public and can be accessed online here.

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