Penny stocks are an interesting subject. They tend to arouse strong feelings; some people say to never buy a penny stock. Others swear by their best penny stocks. It’s true that, mathematically, the gains from a solid penny stock pick can far exceed most other shares. Buy a well-known company already worth tens of billions of dollars, and it will take a while to double your money, let alone get a rocket shot. With a stock trading for a buck, it’s much easier to visualize a path to $5 or $10.
On the other hand, penny stock skeptics make great points as well. Most stocks that trade for a few bucks a share or less are there with good reason. Particularly after a long bull market, such as we’ve had now, there aren’t that many companies in the pennies that are simply undiscovered at this point. If a stock is selling for a low share price, there’s usually a good reason.
With that in mind, do plenty of research when you invest in penny stocks. The gains can be thrilling, but there are more ways for things to go wrong as well. That said, if you’re interested in adding some penny stocks to your portfolio, these are seven names you should have on your radar today.
Penny Stocks to Buy: Castlight Health (CSLT)
Generally, you probably don’t think of software companies as living in the penny stock space. At least not ones with a viable product and a decent amount of revenue. However, Castlight Health (NYSE:CSLT) is a worthwhile exception to the rule.
Castlight offers software to help healthcare providers and has Fortune 500 companies among its customers. As of last quarter, it has nearly $150 million in annual recurring revenue. That’s a formidable business for a penny stock. Since 2013, Castlight’s revenue has soared from $13 million to more than $140 million annually, yet the stock price flopped as investors had baked in huge profit expectations by now. Instead, the company has struggled to deliver consistent earnings. Still, the company’s revenue has continued to trend higher, and it is near break-even on profits. CSLT stock could have significant upside on any meaningful margin improvements or new contract wins.
There’s plenty of risk here. Castlight relies on a close relationship with health insurer Anthem (NYSE:ANTM). Certain presidential candidates want to eliminate private health care insurance altogether, and this would endanger Castlight on a fundamental basis.
With the company worth just $200 million and selling for less than 1.5x sales, however, investors aren’t paying a big price for the upside potential here. Investors could easily value a healthy growing software business at 4-5x sales, which would be enough to power CSLT stock up to the $5 area if management can execute. That’s versus a $1.40 share price now.
Safe Bulkers (SB)
Shipping has suddenly become one of the hottest sectors in the market. For traders looking for speculative plays, shipping has been a gold mine recently. There are new regulations coming into place mandating cleaner fuels shortly, and these are taking a lot of ships out of commission as firms have to upgrade or retire their vessels.
Oddly enough, the trade war has helped as well. Ironically, when you add more tariffs to the mix, it can increase the demand for shipping as goods no longer take the shortest path to market. Instead of the U.S. selling soybeans to China, for example, now the U.S. may have to sell soybeans to tariff-free markets elsewhere, while China buys soybeans from farther away Brazil. And so on. In any case, demand for shipping is up, while the supply of ships is constrained.
So far, Safe Bulkers (NYSE:SB) has not fully taken advantage of this. It had a lot of ships on longer-term contracts and thus it hasn’t enjoyed the big run-up in spot pricing for vessels yet. Recent earnings were disappointing and knocked SB stock back from $2 to $1.55. The tailwinds are still strongly in place for shipping, however, and Safe Bulkers should benefit more in coming quarters.
Uranium stocks got clobbered this summer and have yet to recover. The sector took a beating following news that the U.S. government decided against implementing a quota system that would boost incentives for American uranium production. UR-Energy (NYSEAMERICAN:URG) and other sector stocks lost roughly a third of their value following the news. Now, URG stock trades for just 60 cents.
That offers an opportunity, however. Globally, uranium appears to have bottomed out a few years ago and supply and demand are starting to match up. Idled reactors in Japan following the Fukushima disaster are finally coming back online now. Meanwhile many emerging markets such as Russia are continuing to build new reactors. There will clearly be an uptick in uranium demand in the 2020s while the big uranium suppliers have cut capacity. A shortage is coming.
Meanwhile, generation four reactors promise to bring a new era of cheaper and far safer nuclear power to developed countries. Both the Trump administration and democratic presidential candidates such as Cory Booker and Andrew Yang support using nuclear as a transition technology to help bridge the gap between fossil fuels and green renewables. This new nuclear trend could help set off a speculative impulse for uranium stocks. At 60 cents a share, URG is a true penny stock to capitalize on the trend.
Great Panther (GPL)
Great Panther (NYSEAMERICAN:GPL) has a long history. Since its American listing in 2008, Great Panther stock has traded between 50 cents and $5 per share, and settled back at 50 cents recently. In 2010-11, GPL stock was in the right place at the right time, rallying as much as 400% on stronger silver prices. After returning to 50 cents in 2015, Great Panther proceeded to quadruple again in 2016.
All that is to say that Great Panther has been through a lot. They haven’t created consistent shareholder value yet, but they’ve managed to stay in business through a bitter downturn in the precious metals space. That’s worth something. A stock like GPL is a call option on higher gold and silver prices, and as long as they keep operating, there’s a chance of a payoff.
Historically, Great Panther focused on silver production in Mexico. Lately, however, they bought a gold mine in Brazil to diversify their efforts. In fact, with the addition of the Tucano property, Great Panther will now get the substantial majority of revenues from gold, with a significant silver kicker left.
Through the first nine months of 2019, Great Panther has averaged $1,276 per ounce all-in-sustaining costs for its gold production, excluding corporate costs. That leaves little room for profit with the price of gold around $1,450 per ounce. When the gold bull market resumes and prices resume their push toward $1,600/oz, however, GPL stock could make another of its periodic sprints higher.
Enel Chile (ENIC)
We had the Arab Spring in 2011, when various Middle Eastern countries started to protest against their governments. There’s no catchy name yet, but a similar phenomenon is occurring in South America now. Protesters have launched nationwide strikes, huge demonstrations against the government, or outright attempts to unseat the president by means not limited to voting in countries including Bolivia, Chile, Ecuador, and Argentina in recent months. Investors are, not surprisingly, dumping Latin American stocks given the uncertainty.
In Chile, for example, protesters have burned subway vehicles among other acts of sometimes violent resistance. The ruling government has struggled to pacify the situation, leading to a stunning 25% decline in Chilean stocks in less than a month.
Enel Chile (NYSE:ENIC) is one stock that has gotten caught in the crossfire. Enel is one of Chile’s largest electricity providers, generating and distributing power to millions of customers. It has invested heavily in renewable energy including wind and hydro projects. With its net income running roughly $500 million per year, it is now selling for just 10x earnings at a $5 billion market cap as the share price has dropped from $5.50 to $3.70 thanks to the government uncertainty. Once the current political unrest passes, ENIC stock should be able to retake the $5 level and beyond.
Banco BBVA Argentina (BBAR)
Like with Chilean stocks, investors have absolutely dumped Argentina. The recent Argentine presidential election will soon return hard left Cristina Kirchner to power in the role of vice president. While it’s unclear what new president Alberto Fernandez will do economically, with Kirchner involved, investors are right to be nervous. The Peso has collapsed, and Argentine bonds have rapidly priced in the possibility of another default.
The thing is, we’ve seen this movie before. Banco BBVA Argentina (NYSE:BBAR) has been listed on the New York Stock Exchange since the 1990s. In 2001, with the previous Kirchner government takeover, BBAR stock imploded from $25 to $1.50. But it survived and rebounded to $10 by 2006, offering 6x returns for anyone that bought near the low, and reclaimed the $25 level again a few years ago.
Banco BBVA Argentina stock is again down from $25 to $3 on the recent political developments. But if it can merely stay in business, as it did during the Argentine crisis in 2001-2002, shareholders should be richly rewarded. BBAR was regularly producing 50-75 cents of annual earnings per share in recent years and paying a strong dividend, despite mixed economic conditions in Argentina. Needless to say, the stock is an absolute steal at $3 assuming any sort of return to normalcy in Argentina. And if the country actually gets another economic boom going, BBAR stock could be an absolute home run.
Emerson Radio (MSN)
Our last of the penny stocks to buy is a curious case: a net-net. A net-net is a situation where a company’s cash and assets are worth more than all its debts. If you liquidate the company, it’d be worth more than the current share price. That’s very much the case with Emerson Radio (NYSEAMERICAN:MSN).
If you’re not familiar, Emerson Radio used to be a household name; it made its classic radio units along with a wide range of consumer electronics. In past years, it stopped manufacturing its own goods domestically, instead licensing the Emerson name out to third parties. That line of business has also largely dried up, so now Emerson has switched to producing goods such as microwaves, toasters, and charging devices in Asia and distributing them in the U.S. Major retail partners include Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN).
In any case, this business is not going well, and Emerson is slowly losing money. Thus, investors are looking at the company as a potential liquidation play. At this time, Emerson has roughly $1.60 per share in net cash and short-term investments. Yet MSN stock sells for only 75 cents. Emerson has been buying back stock, essentially buying $1.60 of cash for less than a dollar per share. But if they take the next step and dissolve the company, paying over the leftovers as a dividend, shareholders should win big. Even if they don’t do that, there’s some chance the operating business will pick up again. At 75 cents, MSN stock is an interesting speculation.
At the time of this writing, Ian Bezek owned BBAR stock. You can reach him on Twitter at @irbezek.