[Editor’s note: This story was previously published in May 2018. It has since been updated and republished.]
Do you think penny stocks are best left to amateur traders who don’t understand that cheap stocks are cheap for a reason? It’s not an entirely unfair assessment. Many of these young (and doomed) companies are the beneficiaries of great sales pitches, but their investors often end up suffering buyer’s remorse.
It’s a misnomer, however, to think that all penny stocks — let’s quantify them as equities priced at less than $5 per share — aren’t worth owning. Thanks to factors ranging from prolonged weakness in the commodities market to strategic stock splits to poorly-timed IPOs, a handful of these low-priced equities are actually compelling prospects.
Here’s a run-down of four of the best penny stocks to mull for 2019, and maybe beyond. All of these names are listed on exchanges.
AK Steel Holding Corporation (AKS)
One would think the steel business is steady and predictable, with these stocks (and steel prices) ebbing and flowing more or less with the macro economic cycle. That conclusaion isn’t correct, however.
The steel industry is a volatile mess, with ever-changing supply and demand making it impossible for the likes of AK Steel Holding Corporation (NYSE:AKS) to commit to a plan for the future.
As a result, AKS stock has basically gone nowhere for the past 15 years, with everything that could go wrong during that time for AKS going wrong at an inopportune time.
That may finally be on the verge of changing, however. With President Trump at least willing to try to level the playing field between the United States’ steel companies and overseas rivals at the same time the global economy appears to be picking up some steam, AK Steel is in a proverbial sweet spot.
PDL BioPharma Inc (PDLI)
PDL BioPharma (NASDAQ:PDLI) is a curious beast. It was initially established as a vehicle to acquire the rights to, or patents on, highly marketable drugs that would ultimately drive income for its investors.
It worked too, for a while. As time marched on, however, drug developers realized they could do for themselves what PDL was doing. Ergo, PDL BioPharma has been struggling for a while now to acquire drugs and marketing rights at prices that left room for healthy dividends.
That’s a big part of the reason PDLI stock has fallen from a value of more than $30 in 2006 to a price of only $3.77 per share now.
Groupon Inc (GRPN)
Talk about a fall from grace! Groupon (NASDAQ:GRPN) was a market darling when it went public back in 2011, at a price of $28 per share. It had a honeymoon that didn’t last long at all though, with shares retreating into penny-stock territory less than a year later, where it’s been stuck ever since.
And truth be told, Groupon stock deserved the beating it took. Not only was its pre-IPO growth rate not built to last, but a host of competition has stepped up to the plate in the meantime. Its net income peaked in 2012, and its sales peaked in 2015.
The daily-deals company may have finally found a winning formula though, setting the stage for improvement in 2019 and beyond.
Analysts say that while sales are apt to fall this year, its EPS should rise. That may be all traders need to see to get this stock back in a nice uptrend.
Zynga Inc (ZNGA)
Note: Zynga stock has risen slightly above $5 since this column was first published.
Last but not least, put Zynga (NASDAQ:ZNGA) on your list of penny stocks to mull for 2019. Yes, this is the same Zynga behind great online games like Words With Friends, FarmVille and several other titles you may not have realized were part of its library.
This is the same Zynga that Facebook dropped an exclusivity arrangement with back in 2012, undermining its well-received IPO from 2011 and sending the stock to a sub-$5 price where it’s been almost ever since. Though Zynga hasn’t done poorly, it’s certainly not done nearly as well as investors were expecting it to when it first IPO’d.
Change is brewing though. In 2017, CEO and founder Mark Pincus gave up his control of the company by scrapping the two classes of voting shares that granted him an inordinate degree of voting power.
That’s not to say he alone was the reason the company was unable to grow in a meaningful way, but it certainly didn’t help. In the meantime, its revenue and income are expected to edge higher this year, anyway.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.