Whether you’re a newbie who just watched The Wolf of Wall Street or you’re a seasoned trader whose previous fliers on penny stocks have burned one too many holes in your pocket, the story is the same: stay away from penny stocks!
Penny stocks (classified by the SEC as anything trading under $5) are among the more volatile securities you’ll ever come across. There are a few reasons for that, not the least of which is that their low prices confuse many would-be investors. Remember, just because it trades for a dollar doesn’t mean that it’s a cheap stock.
Consider Lifeway Foods (NASDAQ:LWAY), which trades for a mere $2.45 and Danone (OTCMKTS:DANOY), trading at $15.55. On the one hand, Lifeway certainly appears cheaper but it’s unprofitable at the operations level. On the other hand, Danone has a price-to-earnings ratio of 15.9. Bottom line: you’re paying a much-higher premium for LWAY stock despite its smaller “sticker” price.
That micro price tag makes penny stocks more susceptible to scammers and to wild swings in price.
But all of this is not to say that buying penny stocks can’t go your way — just that the odds are stacked against you.
Still here? Good. For those of you determined to get rich quick and hold on for dear life, I’ve rounded up five penny stocks that I found through a combination of earnings growth, fundamental strength and performance.
I’ll tell you if you should buy it or stay away from it, but do yourself a favor and only invest money that you can afford to lose. Basically, don’t gamble with your kid’s college fund. These stocks are only for the crazies who can stomach the risk.
5 Penny Stocks to Buy: Enservco Corporation (ENSV)
Five-year earnings growth: 20%
Year-to-date performance: -29.66%
Enservco (NYSEARCA:ENSV) is a little-known oil and gas player with a lot of earnings juice in the tank. The reason you haven’t heard of this Denver-based company is due to its particularly boring, but stable, business: well enhancement and fluid logistics.
In a nutshell, Enservco works with American exploration and production (E&P) firms through its three subsidiary businesses (Heat Waves Hot Oil Service, Heat Waves Water Management, Dillco Fluid Service). These companies provide core services that include hot oiling, acidizing and frac water heating.
It’s not your conventional oil and gas business.
While Enservco suffered along with the rest of the oil patch during the dog days of the energy rout, it has since turned things around. In 2016, ENSV reported an operating income loss of $11 million. By 2017, management had trimmed that loss to $5 million. And in 2018, its operating loss had narrowed to just $2 million. For the first six months of 2019, Enservo posted operating income of $1.52 million.
Enservco is now on track to become profitable again and the company has proven that it can drive profit growth even in a low-price environment. In its most recent quarterly report, ENSV reported 19%% revenue growth.
Should you buy ENSV stock? In the past year, Enservco’s stock is down 72%. But with an average 20% growth rate expected over the next five years, it’s not difficult to see a path for ENSV stock to move higher. But for now, be cautious with ENSV stock.
Smart Sand (SND)
Five-year Earnings growth: -2.6%
YTD performance: -26.6%
Smart Sand (NASDAQ:SND) is another company that works directly with frackers and oil drillers. Unlike Enservco, Smart Sands’ business is in hydrocarbon. Specifically, SND is in hydrocarbon recovery for Big Oil hydraulic frackers. It also owns its own sand mine for fracking in the Oakdale, Wisconsin area, and another mine in Jackson County, Wisconsin.
Lately, business has been good, with Smart Sand increasing its revenue from $59.7 million in 2014 to an expected $231 million in 2019.
In Q3, SND increased revenues by 4% year-over-year Better still, adjusted EBITDA climbed 30% YoY
Should you buy SND stock? According to U.S. Silica (NYSE:SLCA) CEO, Bryan Shinn, demand for locally sourced frac sand is growing.
“The trend towards longer laterals and more sand per well is continuing and will drive strong demand into 2019 and beyond,” says Shinn. Higher oil prices should also facilitate stronger demand for fracking sand and make SND stock worth holding.
Expected 5-Year Earnings growth: 10.75%
YTD performance: 69%
Continuing in the tradition of stocks you’ve never heard of, enter SmithMicro (NASDAQ:SMSI). SMSI plays an important role in many major technological trends, and it is a low-key way to play trends across several industries, including the mobile and cable industries.
SmithMicro boasts more than 100 million devices across the world that use SMSI’s products and solutions, running the gamut from home security to graphic tools for artists. Here’s a quick rundown of its product suite:
SafePath: Home connectivity and security designed for families. Includes location and parental controls, Internet of Things device connectivity and network security.
CommSuite: Voice messaging with several iterations, including the ability to check voicemail on any device or platform.
ViewSpot: Designed for retailers. ViewSpot supports in-store display and analytics which track the “customer’s in-store journey.”
Graphics: Includes solutions for 2D animators, comic artists, “hyper-realistic” digital painting and an app that turns photos into works of art.
Should you buy SMSI stock? SmithMicro’s net income has exploded recently, going from a loss of $3.14 million in 2018 to a gain of $3.2 million in Q3. Further, sentiment on SMSI is increasing. B. Riley’s Josh Nichols slapped the stock with a “buy” rating and a price target of $8.50.
That said, if you bought in before SMSI’s 69% increase, keep holding the stock. For those of you looking for more triple-digit gains, I’d be wary of SMSI stock until a new catalyst emerges.
Coffee Holding Co (JVA)
Sector: Food & Beverages
Expected 5-Year Earnings growth: 16%
YTD performance: -19.3%
Like most of the companies on this list, you’ve probably never heard of Coffee Holding Co (NASDAQ:JVA) — a scrappy little company whose business is beans. JVA sells coffee wholesale for several uses, which include green coffee, private-label use and as branded coffee.
Back in 2011, Coffee Holding was on top of the world. Forbes named Coffee Holding No. 41 on its “Best Small Companies” list amid a boom in coffee stocks. Companies such as Caribou Coffee and Peet’s Coffee & Tea were flying high as the price of coffee peaked around $2.90-per-pound.
Today, both Caribou and Peet’s are delisted as the price of coffee trades just under $1 per pound.
The only U.S. coffee stock you hear about now is Starbucks (NASDAQ:SBUX), which is more akin to McDonald’s (NYSE:MCD) than the aforementioned coffee stocks. But Coffee Holdings is still kicking despite the volatility in coffee prices, which have been in a bearish trend since November 2016.
Should you buy JVA stock? Its relative anonymity works in its favor; JVA stock currently has a single analyst (Stephen Anderson of Maxim Group) covering it, earning JVA its sole “buy” rating. Anderson’s price target of $9 is nearly double JVA’s current perch of $3.74.
If Coffee Holding rises on the back of higher coffee prices, you can bet that price target will be revised higher and more analysts will pile in with their own targets. If you’ve got money to risk, buy JVA stock before that happens.
Dolphin Entertainment (DLPN)
Sector: Cyclical Consumer Services
Next year’s earnings growth: 50%
YTD performance: 20%
If you evaluated Dolphin Entertainment (NASDAQ:DLPN) based solely on its 2018 performance, you may have run for the hills and not looked back.
I understand if you did — it’s a relatively unknown company that has struggled for years to turn a profit, capped by a year of monster losses … why would anyone dare risk their own money in DLPN?
Its massive upside potential. Three analysts have an average price target of $1.83 on the stock, more than double its current price of 90 cents.
Should you buy DLPN stock? With all of the hoopla surrounding, Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS), it’s easy to forget there are other content production companies in existence. Dolphin Entertainment may not be the largest or the loudest, but it’s making moves behind the Hollywood scenes. It acquired 42West marketing outfit, which gave DLPN a revenue stream in the public relations industry. And with a price-sales ratio of just 0.6 and a market cap of just $14.95 million, it’s hard not to take a flier on DLPN stock.
John Kilhefner is the senior managing editor for the Lango franchise. He’s also a founder of the DC creative agency Skellator, LLC. As of this writing, Kilhefner did not hold a position in any of the aforementioned companies.