Editor’s note: This story was previously published in May 2019. It has since been updated and republished.
The potential to become wealthy often means investing in an enterprise when it is small and waiting for the entity to grow large. For this reason, many investors are willing to take chances on what they believe to be hot penny stocks. Investors in these stocks often lose everything … but they can also end up earning massive profits from a small amount of investment capital.
For example, Booking (NASDAQ:BKNG) (formerly known as Priceline.com) traded as low as $1.08 per share in 2001 (albeit before a 1:6 reverse split). BKNG now trades about $1,965 per share. American Tower Corp (NYSE:AMT) fell to 60 cents per share in 2002 following the dot-com crash. AMT now sells for around $205 per share.
I cannot guarantee such a comeback for any penny stock of today. The following four stocks, however risky, could be positioned for outsized gains in various industries:
Arotech Corporation (ARTX)
Year-to-date gain: -27%
Arotech Corporation (NASDAQ:ARTX) functions as a defense and security services company. Despite its market cap of just under $50 million, it operates in multiple countries and competes with the likes of General Electric (NYSE:GE) and Honeywell International (NYSE:HON) through its Power Systems division.
ARTX also serves as a defense contractor and makes products designed for military, homeland security and law enforcement purposes. Considering the Trump administration’s commitment to increase defense spending, Arotech could find itself well-positioned to benefit. GE’s struggles with its Power Division could present an opportunity.
However, like all hot penny stocks, this play remains speculative. The company earned a profit of 17 cents per share in 2017. Still, profits grew to 19 cents per share in 2018 and are expected to shrink to 14 cents per share in 2019, so this company has struggled with growth. Likewise, its revenues for 2018 stood at $96.6 million. Even though analysts forecast revenues of $97.08 million for 2019, they remain below the 2014 revenues, which were $103.57 million. Arotech was founded in 1990, so the build-up to these revenue levels has been slow.
However, the future beyond 2019 looks more promising. For 2020, analysts predict revenues of $112.74 million, a 16.1% increase. They also believe earnings will come in at 23 cents per share, 64.3% higher than 2019 levels. Nobody predicts a return to $334.25 per share, its split-adjusted all-time high from 2000. However, if the company can match levels of predicted growth, its forward price-earnings ratio of about 8.1 will start to appear very low.
Chesapeake Energy (CHK)
YTD gain: -24%
Oklahoma City-based Chesapeake Energy (NYSE:CHK) is an upstream oil and natural gas producer. As an exploration and production company, times are great when oil prices are high. However, in an environment of low prices, revenue generation becomes a struggle. Chesapeake is the country’s second-largest natural gas producer. Consequently, rock-bottom natural gas prices have weighed on CHK stock.
CHK stock traded as high as $31 per share in 2013. The oil price slump of 2014-2016 hit its interests hard. By 2016, CHK had become a penny stock. Although it returned to profitability soon after, it acquired Wildhorse Resources to increase its exposure to oil.
However, the costs of that deal coupled with rock-bottom natural gas prices have again taken CHK below $2 per share. Long-term debt, which stood at $9.167 billion at the end of Q1, has also diminished confidence in the company. Chesapeake trades at just over $1.60 per share as of the time of this writing.
The key to Chesapeake’s success hinges on survival. Heightening geopolitical tensions could still increase oil prices. Moreover, new liquefied natural gas (LNG) export terminals continue to come online. This will allow Chesapeake to sell its natural gas in Europe and Asia where LNG fetches significantly higher prices. Further, demand for U.S. natural gas abroad could ease the process of asset sales as the company works through its crushing debt load. If this enables Chesapeake to clean up its balance sheet, the price of CHK stock could see massive gains.
YTD gain: -68%
Las Vegas-based mCig Inc (OTCMKTS:MCIG) is a marijuana industry holding company. Once limited to vaporizers, it has transformed itself into a full-scale marijuana cultivation construction company. While they had operated only in Nevada, the company landed contracts in California and New York last year.
Seeing business come in from across the country shows encouraging signs and could make MCIG one of the top marijuana penny stocks. However, financials also remain sparse. That said, Chairman and CEO Paul Rosenberg took the unusual step of cancelling and returning 30 million shares of common stock that he owned back to the company treasury. This saves the company from having to further dilute the stock to stay afloat. It also signals a longer-term commitment on the part of Mr. Rosenberg.
The company saw $1.72 million in revenues in 2016. This grew to $4.78 million in fiscal 2017, and the company made $1.53 million in that fiscal year. The company brought in over $7 million in 2018.
The stock enjoys rapidly rising revenues and profits. Still, investors should still treat this as a speculative play. MCIG stock trades around 6 cents per share. It has never traded above $1, though it briefly reached 92 cents per share in 2014. Still, it will need to see more growth before becoming one of the hot penny stocks.
The current price stands well above the 5-cents-per-share level where the stock traded for most of 2016. If the company can continue gaining traction, its current $29.5 million market cap could rise much higher.
Tuesday Morning Corporation (TUES)
YTD gain: -9%
Dallas-based Tuesday Morning Corporation (NASDAQ:TUES) has become one of many retailers that have struggled to stay profitable in a changing retail environment. Founded in 1974, the company expanded across the country, operating in 41 states by 2001. During the past few years, the company has been plagued by high turnover in its top management and struggled to remain profitable.
Still, the company operates over 700 stores across the U.S., which by itself should make it one of the hot penny stocks. Revenues have been rocky, though. In its latest quarter, both net and comp sales were down more than 5% and margins were up more than 30%. For the upcoming quarter, analysts forecast a 2.1% revenue decline as well as losses widening by 30.4% to 30 cents per share.
Given that analysts expect net losses for both the current year and the year after, investors should still treat this stock as speculative.
Still, a stock price in the $1.63 per share range and a market cap of about $76 million seems low for a company with over 700 stores. Traders should also keep in mind that this stock traded at over $22 per share in late 2014. If management can meet expectations for revenue increases in 2020 and return TUES stock to profitability, those who buy now could enjoy outsized gains from a dramatic comeback.
As of this writing, Will Healy is long CHK stock. You can follow Will on Twitter at @HealyWriting.