Many of the so-called “rags to riches” stories coming from the stock market involve penny stocks. Penny stocks usually achieve that status when investor cast legitimate doubts about their financial future. Indeed, many stocks which fall below $1 per share never recover and end up falling to $0, wiping out investors.
However, others go on to recover, returning their stock price to the double digits and occasionally beyond. Hence, setting aside a small portion of one’s investment budget for such speculative plays can lead to massive gains.
Although the following three stocks pose significant risks, conditions have emerged that could move them beyond penny-stock status and position today’s investors for huge profits.
Penny Stocks Poised for Growth: Cannabis Wheaton Income Corp (CBWTF)
The recent trend toward marijuana legalization should hit a fever pitch in the second half of the year. This will benefit penny stocks in the cannabis sector such as the stock formerly known as Cannabis Wheaton Income Corp (OTCMKTS:CBWTF).
CBWTF stock, which recently changed its name to Auxly Cannabis Group Inc., agrees to invest in a grower in exchange for purchasing a portion of the crop at below-market prices. The company should also be changing its ticker soon to XLY.
The cost of raising capital has greatly diluted CBWTF stock. As a result, it trades below $1 per share. However, revenue has begun to rise. Revenues rose from C$238,000 to C$1.38 million in 2017. The company has also increased its cash holdings to about C$206 million as of the end of Q1, up from C$33 million in the last quarter.
This cash allows CBWTF to cash in on the legalization trend sweeping North America. Analysts expect legalization to take effect in Canada by September. That benefit could also extend to several U.S. states. President Donald Trump has signaled support to end the federal ban on marijuana. Despite legalization by some U.S. states, the federal ban restricts access to the financial system for marijuana companies.
Such a removal benefits CBWTF and all marijuana stocks.
Penny Stocks Poised for Growth: Novavax (NVAX)
Many penny stocks have historically traded higher, particularly in the biotech sector. Novavax, Inc. (NASDAQ:NVAX) has seen much volatility in its 30-plus year history. It traded above $15 per share as late as 2015 before falling below $1 per share in 2017. While it has managed to climb back above $1, it has struggled to gain traction.
Still, the stock has improved on the excitement surrounding two drugs in its pipeline. A vaccine for respiratory syncytial virus (RSV) has made it to phase 3 trials. Assuming the phase 3 trial goes well, the company could submit it for regulatory approval by 2020.
Also, NanoFlu, its influenza vaccine, has also shown promising results in its phase 1 trial and will begin phase 2 trials later this year.
After years of losses, this could lead to the 41-cent-per-share profit analysts have forecast for 2021. Even without the RSV vaccine, the financials have shown improvement. Analysts expect a loss of 50 cents per share for 2018. The company incurred a loss of 63 cents per share in 2017. Moreover, revenues, which had come in at nearly $31.2 million last year, are expected to rise above $38.5 million in 2018. Analysts expect 2019 revenues to fall.
However, they also expect losses to narrow to 46 cents per share. If at least one of its drugs can gain approval, NVAX could return to or possibly exceed its 2015 highs.
Penny Stocks Poised for Growth: Seanergy Maritime (SHIP)
Seanergy Maritime (NASDAQ:SHIP) has experienced a tremendous downfall since the financial crisis. After several unprofitable years, the Athens-based shipping company has fallen into penny-stock status as it struggles to survive. However, a return to profitability could again send SHIP stock moving higher.
The company reported its first quarterly profit in several years in the third quarter of 2017. Analysts further expect the company to earn 8 cents per share in 2018 after seeing an annual loss of 9 cents per share the year before. Wall Street also expects revenue to come in at $61.8 million, up from $39.9 million in 2017. Both revenue and income are also likely to see double-digit increases in 2019.
Still, investors need to remain aware of the dangers. Current liabilities still exceed current assets. Debt levels also exceed $200 million in both long- and short-term debt. This debt represents a crushing burden when the market cap stands at about $31.75 million. Shipping also remains a volatile industry. Any downturn in the economy could jeopardize the company’s ability to remain in business.
For these reasons, investors should bet on penny stocks such as SHIP only with funds set aside for speculation. Nonetheless, this is a stock trading around 80 cents per share that once commanded over $750 per share on a split-adjusted basis. Although I do not foresee a return to that level, a sustained string of profitable quarters could lighten its debt burden and take this stock substantially higher.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.