[Editor’s note: “5 Cheap Stocks to Buy That Are $6 or Less” was originally published in May 2019. It has since been updated to include the most relevant information available.]
The stock market’s volatility at the start of 2019 didn’t make me any less bullish on stocks, and that mentality has paid off — the Dow Jones is up 13% year-to-date. And my penny stock picks? While some are down from their first-quarter peaks, most of them remain considerably higher on a YTD basis.
Among these stocks, market movements can cause some noise. But the investment thesis on cheap stocks to buy is predicated on huge moves higher in the long-term. Thus, in the near-term, macro-driven movements amount to nothing more than a sideshow.
From this perspective, now might be a good time to pile into some stocks under $5. These stocks to buy are a high-risk bunch. But they do have high-reward potential, too.
With that in mind, here is a list of five of the best penny stocks to buy that I think have more upside potential to ride the market’s bullishness.
Cheap Stocks to Buy: Plug Power (PLUG)
PLUG stock price: $2.40
YTD gain: 94%
Shares of hydrogen fuel-cell maker Plug Power (NASDAQ:PLUG) are probably most infamous for losing a jaw-dropping 99.9% of their value from 2000 to 2019. But PLUG stock is making headlines recently for much better news, with shares up nearly 100% YTD because traction in the HFC commercial market has significantly improved results at Plug Power.
For those who are unaware, hydrogen fuel cells — what Plug Power makes — are essentially the “battery” of hydrogen cars. These cars are similar to electric cars in that they are an alternative to gas cars, except they are powered by hydrogen, not electricity.
Hydrogen-powered technology has not evolved as quickly as electric-powered tech, as such, electric cars have became the craze, while hydrogen cars have been an afterthought. But, in the commercial market, hydrogen tech is starting to gain some ground, because hydrogen fuel cells last longer than battery cells, and have shorter recharging times.
As the commercial market has started to gain material traction in 2019, Plug Power’s growth rates and margins have meaningfully improved, and PLUG stock has rallied big in response.
Can this dynamic continue? Potentially, yes. If the commercial market continues to more openly embrace HFC technology, Plug Power’s growth rates will continue to be robust, margins will continue to improve and big losses will turn into big profits. Sure, that’s a big “if”. But, in the event that it does happen, PLUG stock could turn into a multi-bagger in the long run.
Workhorse Group (WKHS)
WKHS stock price: $3.44
YTD gain: 548%
Few stocks have been as hot nascent electric vehicle company Workhorse Group (NASDAQ:WKHS) in 2019, as WKHS stock has turned multiple positive announcements and big-time partnerships into a near 550% YTD gain.
Workhorse is an electric vehicle company. They make electric vehicles for the commercial market, with their core product being electric delivery vans. Coming into the year, most investors wrote off Workhorse as just a highly ambitious EV company that wouldn’t survive in the long run.
But, in 2019, Workhorse purchased an old supply plant from General Motors (NYSE:GM) in a deal that gave investors confidence that Workhorse may actually turn into a legit commercial EV supplier with robust production. Following that deal, rumors started to spread that Workhorse is a finalist for a big contract with the USPS, wherein Workhorse would supply the delivery giant with next-gen delivery vehicles.
That contract is worth $6.3 billion. Workhorse has a $230 million market cap. Let that sink in for a second. If Workhorse wins a contract worth more than 25-times its current market cap, then WKHS stock could soar in the event the company does win that contract.
Put it all together, and it looks like the big YTD rally in WKHS stock, could be the start of something even bigger in the long run.
Stage Stores (SSI)
ZNGA stock price: $1.60
YTD gain: 120%
Over the past several years, as e-commerce has disrupted the traditional retail model, everyone wrote off struggling department store operator Stage Stores (NYSE:SSI) as just another brick-and-mortar retailer getting squeezed out of the retail scene and heading for the retail graveyard.
Indeed, Stage Stores had all the ingredients necessary for eventual extinction. Negative comparable sales growth. Compressing margins. Falling profits. Negative cash flows. A debt burdened balance sheet. A lack of distinguishing features in the competitive retail market. Stage Stores had it all — in a bad way — and that’s ultimately why SSI stock entered 2019 at 75 cents.
But, Stage Stores stock has staged an incredible turnaround in 2019, with shares more than doubling YTD on the back of what investors think could be a viable turnaround plan. Long story short, Stage Stores operates both full-price and off-price department stores. The full-price business accounts for the lion’s share of revenues today, but it has been a losing business. The off-price business is much smaller, but much better.
SSI’s plan? Close a bunch of full-price stores, and convert the rest into off-price stores, thereby transforming into a small version of TJX (NYSE:TJX) or Ross Stores (NASDAQ:ROST). Will this transformation work? It could, because off-price has proven to be a winning strategy. And, if it does, SSI stock could go a lot higher in the long run, seeing as SSI stock’s sales multiple is less than 2% that of TJX stock’s sales multiple.
Aurora Cannabis (ACB)
ACB stock price: $4.45
YTD gain: –11%
There is no hiding the fact that pot stocks have cooled off tremendously over the past few months. Canadian cannabis producer Aurora Cannabis (NYSE:ACB) has been no exception to this trend. ACB stock presently trades more than 50% off its 2019 highs.
But, this decline feels overdone. I get the concerns. The cannabis sector is suffering from stagnant demand because black market prices are way lower. Supply is also an issue in the legal channel, as are things like taxes and licenses. There’s also the whole vaping crisis. Against this dour backdrop, Aurora is operating at very low margins and burning a ton of cash — with not much cash left in the bank. So, if things go on like this for the next few years, Aurora might go out of business.
But, things won’t go on like that for the next few years.
The cannabis industry is simply going through growing pains today. Those pains won’t last forever. Eventually, legal players, who have much more financial backing than black market players, will have significantly more growing capacity than black market players. That huge supply will drive legal prices down below black market prices, which will turn black market demand into legal market demand and provide a huge tailwind for revenues.
At the same time, once cannabis production capacity gets that big, cannabis companies like Aurora will stop spending an arm and a leg to expand capacity. Less focus on expansion will mean more focus on profitability. That will lead to cost-saving measures, which should provide a lift to margins. If revenue and margin trends do improve from here, then not only will Aurora be profitable soon, but those profits could actually be quite large, too.
Net net, ACB stock is priced as if today’s growing pains will last forever. They won’t. Once it becomes clear that they won’t, this stock could soar from current levels.
Blink Charging (BLNK)
BLNK stock price: $2.48
YTD gain: 45%
When it comes to cheap stocks, there are few as volatile as Blink Charging (NASDAQ:BLNK).
Over the past two years, BLNK stock has gone from $10 to $3, and popped from $4.50 to $8; it now sits at a paltry $2.60. This volatility won’t give up any time soon. Thus, if you want to avoid volatility, I’d normally say avoid BLNK stock.
That being said, there’s also a few things to like here.
The company has a promising secular growth narrative, centered around building a network of electric vehicle charging stations globally, which aligns strongly with current favorable growth trends in EV adoption rates. The company has also won a few big partnerships and deals recently, including a 200-EV-station deal in Chile and a similar EV station deal in Greece. There’s also the fact that Blink Charging is a $65 million company in a market that projects to grow at a 40% compounded annual growth rate to $30 billion by 2023.
Thus, in the big picture, BLNK stock could be a multi-bagger in the making. It is a big risk. But, eventually, global infrastructure will need to match demand in the EV market. At that point in time, there will be some huge contracts awarded to electric vehicle charging station companies.
Will Blink be one of them? Perhaps. It’s tough to tell. But if they do keep landing big contracts, this stock should add on to its 45% YTD gain.
As of this writing, Luke Lango was long TJX and ACB.