[Editor’s note: “5 Speculative Penny Stocks Under $5 That Deserve Your Attention” is regularly updated to include the most relevant information available.]
As I’ve said many times before, stocks in the under $5 crowd (or “penny stocks”) should be avoided by risk-adverse investors, since they are inherently risky. That’s especially true today, with financial markets across the globe falling with velocity not seen, ever, on escalating concerns that the rapidly spreading coronavirus outbreak and plunging oil prices will send the global economy into a recession (that’s probably already happened, actually).
But, if like me, you see the coronavirus contagion being contained within the next few months and the economy rebounding with vigor on the back of tremendous monetary and fiscal stimulus in the second-half of the year, then now is the time to start buying stocks in anticipation of that rebound.
And, if you are a particularly risk-seeking investor, then now is the time to start buying penny stocks.
With that in mind, some of the top penny stocks that deserve your attention in April — and could bounce when markets reverse course — include:
- Plug Power (NASDAQ:PLUG)
- Bed Bath & Beyond (NASDAQ:BBBY)
- Nio (NYSE:NIO)
- Telaria (NYSE:TLRA)
- Cronos (NASDAQ:CRON)
The logic is simple. If stocks do rise, then penny stocks will rise by more. Investors love to sell risky penny stocks when it looks like the sky is falling. Conversely, they love to buy risky penny stocks when skies are clear.
Penny Stocks Under $5: Plug Power (PLUG)
Stock price as of this writing: $3.30
One penny stock which has gone from red-hot to ice-cold in 2020 — and which could get red-hot again in coming months — is hydrogen fuel cell maker (HFC) Plug Power.
The bull thesis at Plug Power is pretty simple. Hydrogen fuel cells have been around for a long time as a clean energy solution. But, they’ve lagged electric batteries in terms of mainstream clean energy adoption, for various reasons ranging from safety concerns to a lack of charging infrastructure.
That’s changing today. Hydrogen fuel cells, which have become increasingly safe over the past few years amid technological improvements, are gaining significant traction in the material handling industry, where these fuel cells are actually better than electric batteries because they deliver more power for longer times at lower costs.
That’s why huge companies like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) are increasingly deploying Plug Power’s HFC forklifts in their warehouses. More companies are quickly joining suit, too, amid increasing pressure on companies to find cost-effective ways to reduce carbon emissions. For example, Plug Power just landed a third big anchor customer in 2020, which many analysts speculate to be Home Depot (NYSE:HD).
Because of all this momentum, PLUG stock initially rose about 80% in 2020 through mid-February. Shares have since come crashing down by 50% amid the coronavirus outbreak. But, during that stretch, all Plug Power has done is report strong fourth quarter numbers which included huge billings and profit growth, and underscored that huge growth is here to stay for a lot longer.
So, if/when current market turbulence passes, consider buying the dip in PLUG stock as a long-term speculative play on hydrogen full cell technology.
Bed Bath & Beyond (BBBY)
Stock price as of this writing: $3.50
No one is shopping right now, and so shares of Bed Bath & Beyond have plummeted 70% year-to-date into penny stock territory.
But, this sell-off is a gross overreaction to near-term pain.
Zooming out, the coronavirus outbreak won’t last forever. Strict quarantining in South Korea and China stopped new spread of the virus within two to three months. Most of China has already resumed normal life. The U.S. is now deploying social distancing measures which should produce similar results, and help put this virus to bed by the summer.
Thus, Bed Bath & Beyond is looking at one to two really bad quarters — and thanks to the government’s huge $2 trillion stimulus bill, this company should have sufficient resources to weather the storm.
Thereafter, the company will resume its turnaround plan based on cost-cutting, store upgrades and closures, e-commerce build-out, and omni-channel development.
In sum, those turnaround initiatives will gain traction in the back-half of 2020, and drive sales stabilization and margin improvement. In response to those favorable developments, BBBY stock will rebound.
Stock price as of this writing: $2.30
Chinese premium electric vehicle (EV) maker Nio has been on a roller coaster ride over the past year and a half. While this roller coaster ride is currently in the middle of a huge downturn, it increasingly looks like the next move is a big upswing.
Of course, NIO isn’t selling a lot of cars right now. China’s economy essentially ground to a halt in January and February. Consumers weren’t going outside, let alone buying cars. It should be no surprise, then, that Nio management guided for first quarter deliveries to be down more than 50% quarter-over-quarter.
But, before coronavirus hit NIO, the company was on a tear. In the fourth quarter, deliveries rose more than 70% sequentially, powered by rising ES6 demand (it’s the number one selling electric SUV in China) and rebounding ES8 demand. Revenues rose 60% sequentially, paced by largely stable average selling prices. Gross margins inched up from the third quarter. So did vehicle margins. Adjusted net loss narrowed versus the same quarter a year ago, and the balance sheet scored some big funding from Hefei’s city government.
All of these trends should resume once life gets back to normal in China.
It already is. China has effectively stopped the spread of coronavirus in its country. Chinese consumers are back to work. Restaurants and shops are open. Consumers are spending again.
This “return to normal” will spark a rebound in NIO’s growth trajectory. The company will report far better second quarter, third quarter, and fourth quarter numbers. As they do, the stock will rebound.
Stock price as of this writing: $6
Small-cap Telaria has plunged into penny stock territory amid the coronavirus outbreak. This plunge seems overdone, and the long-term bull thesis at current levels is quite mouth-watering.
Telaria is an ad tech company that runs something called a video management platform, or VMP. The purpose of the VMP is to help streaming platforms maximize the value of their video ad inventory.
Think Hulu. They have a bunch of ad inventory. They need to maximize it. Telaria helps them do that, by leveraging user and brand analytics to always put the right ad in front of the right customer, thereby increasing ad relevance and conversion.
Essentially, Telaria is a targeted, sell-side ad platform for streaming platforms.
Long term, this company has huge potential. In 2019, marketers spent about $71 billion on linear TV ads. Only $3.8 billion were spent on streaming TV ads. But, consumers are shifting their engagement from linear to streaming TV. Ad dollars will follow suit over the next decade, implying an inflow of billions of dollars into the streaming TV ad space within the next few years.
Telaria did just $68 million in revenue last year. Thus, this company has a huge opportunity to drive explosive revenue growth for many years to come, the likes of which should power TLRA stock far higher than where it trades today.
Stock price as of this writing: $4.90
Canadian cannabis producer Cronos has plunged into penny stock territory in early 2020 on fears that cannabis consumption will come to a screeching halt as the global economy shuts down.
That’s probably true. While cannabis stores have been labeled as “essential” businesses is certain states and territories, the general idea that cannabis sales will be down over the next few weeks is the right one.
But, Cronos has the balance sheet to manage this slowdown. Thanks to a big investment from Altria (NYSE:MO), Cronos has $1.5 billion in cash on its balance sheet, the sum of which should enable the company to simply absorb any operating losses during March and April without risking insolvency.
Thereafter, once the virus fades and the economy normalizes, Cronos’ growth trends will meaningfully improve. Demand trends will improve on the back of aggressive retail store openings and the launch of new vapes and edibles. Gross margin trends will improve thanks to production cuts from the industry’s biggest suppliers. Operating margins will improve thanks to cost-cutting efforts. Operating losses will narrow as improving demand and margin trends converge with one another.
Net net, in the back-half of 2020, Cronos’ revenues will move higher, margins will expand, and net losses will narrow. That’s a recipe for success which should boost CRON stock out of penny stock territory.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long PLUG and NIO.