Back in September 2017, I picked seven beaten-down stocks to buy. I did so after reading a blog post from Ben Carlson, one of the best financial bloggers in the country. The problem with selecting beaten-down or penny stocks to buy is that they often come with a lot of baggage.
Baggage that’s not necessarily going to disappear overnight.
“When dumpster diving for beaten-down shares, you must be able to understand how far divorced fundamentals have become from investor expectations,” Carlson wrote in 2017. “While there were bargains galore in early 2009, late 2011 and even early 2016, if you want to find value in these markets, you have to go dumpster diving.”
Well, of the seven stocks on my list, only one, Kroger (NYSE:KR), is higher today than it was in September 2017.
The glutton for punishment that I am, I’ve decided to go back to the dumpster to find 10 penny stocks to buy trading under $5 as I write this. Hopefully, I’ll do a little better this time around.
Penny Stocks to Buy: Banco BBVA Argentina (BBAR)
Market Cap: $765.9 million
Banco Bbva Argentina (NYSE:BBAR), as its name suggests, is a financial services company based in Buenos Aires, Argentina. It has operated in Argentina since 1886. Its American Depositary Shares have been traded on the NYSE since 1993.
It is the fourth-largest privately-owned bank in Argentina with 7.7% of the country’s total banking system loans on a consolidated basis. At the end of 2019, it had 454 billion Argentine pesos in total assets on its balance sheet.
In 2019, it made 16 billion pesos on 88 billion pesos in revenue. That revenue is up significantly from 49 billion pesos in 2017.
However, investing in Argentina is not for the faint of heart. The country is notoriously bad at defaulting on its debt, making investments extremely volatile. That said, BBAR is cheaper than it has been in the past five years.
I would recommend the bank stock for aggressive investors only.
Global Cord Blood Corp. (CO)
Market Cap: $323.3 million
For those more adventurous, Global Cord Blood (NYSE:CO) holds three out of the seven licenses to operate cord blood banks in China. Two million babies are born each year in the three markets it operates: Beijing, Guangdong and Zhejiang. It has accumulated over 815,000 subscribers since its founding in 2003.
Globally, there are 35 private cord blood banks in the U.S., another 104 in Europe and 54 in South America. Approximately four million private cord blood units are stored worldwide. Global Blood Corp. has 47% market share in China.
The company charges a one-time processing fee of 9,800 Chinese Yuan and an annual storage fee of 860 Chinese Yuan for 18 years. That translates to $200 per customer per year amortized over 18 years. It adds up.
In the first nine months of 2020, the company had revenues of $132.4 million, 25.4% higher than a year earlier, along with operating income of $58.8 million, 39.9% higher than in the first nine months of fiscal 2019.
Silvercorp Metals (SVM)
Market Cap: $688.4 million
Vancouver-based Silvercorp Metals (NYSEAMERICAN:SVM) entered the Chinese market in 2004 by acquiring the Ying project, a small producing mine in the Henan province. Today, Silvercorp produces 6.4 million ounces of silver annually, 22.7 million pounds of zinc and more than 3,500 ounces of gold.
On May 17, Silvercorp announced it would acquire Guyana Goldfields (OTCMKTS:GUYFF) for 227 million CAD in a cash-and-stock deal worth $1.30 per share. Guyana operates the Aurora gold mine in Guyana. The mine produces between 145,000 and 160,000 ounces per year. It has been in production since 2016.
The acquisition creates a diversified precious metals producer that generates positive free cash flow. With Guyana Goldfields under its wing, it will have a strong balance sheet to make further acquisitions and move the Aurora mine from an open-pit operation to an underground mine with more than 14 years of production capacity.
Newmark Group (NMRK)
Market Cap: $737.9 million
Newmark (NASDAQ:NMRK) is a full-service commercial real estate advisory that provides services to both owners and tenants. The company was spun-off from its former parent, BGC Partners (NASDAQ:BGCP), in November 2018.
On May 7, Newmark reported its Q1 2020 results. On the top line, it had $483.9 million in revenue, 8.1% higher than a year earlier. On the bottom line, it had adjusted earnings of $23.5 million, 57.8% lower than in the same period a year earlier.
Sales were 2% lower than the consensus estimate while its GAAP profit was 3 cents per share, 70% lower than the consensus estimate. Since it announced earnings, its shares have basically gone sideways, which is a good sign if you’ve owned its shares for a long time.
One thing dividend investors will notice is that the company cut its quarterly dividend by 90% from 10 cents to 1 cent starting with the June payment. With the dividend cut, it currently yields slightly less than 1%.
Expect Newmark to face a tough commercial real estate market over the next few quarters. However, it has made several moves, including the dividend cut, to ensure it remains financially sound during the economic downturn caused by the novel coronavirus.
Smith Micro Software (SMSI)
Market Cap: $173.6 million
Smith Micro Software (NASDAQ:SMSI) provides software to wireless carriers to enhance their user experience. It currently has three main products: SafePath, CommSuite and ViewSpot. In the latest quarter ended March 31, SafePath generated 59% of the company’s $13.2 million in wireless revenue during the quarter while CommSuite accounted for another 34%.
SafePath’s solutions keep families’ devices connected providing a safer, more enjoyable digital experience. CommSuite provides voice-to-text voice mail messaging for mobile devices that can be accessed from anywhere using any device. It has been installed on more than 18 million mobile devices.
In the first quarter, Smith Micro had adjusted net income of $4.1 million, up significantly from $776,000 a year earlier. The company continues to expand its product offerings beyond SafePath and CommSuite, providing investors with a diversified penny stock opportunity.
One thing to be aware of before you invest: Sprint accounts for 88% of the company’s total revenue. Its merger with T-Mobile (NASDAQ:TMUS) could affect the relationship in the future.
Orion Energy Systems (OESX)
Market Cap: $138.3 million
Orion Energy Systems (NASDAQ:OESX) manufactures indoor and outdoor LED lighting and lighting solutions for all kinds of different industries, including agriculture, healthcare, retail, etc. The company’s lighting solutions are 100% turnkey, providing customers with just one touchpoint when it comes to service.
On March 16, Orion was added to the CIBC Atlas Clean Energy Index, an index with exposure to U.S. and Canadian companies operating in the clean energy sector. Segments include solar, wind, hydro, geothermal, electric vehicles, LED and many others. As of May 26, the index had a one-year return of 29.9%.
In February, Orion reported Q3 2020 results that included revenue growth of 110%. More importantly, its net income went from a loss of $700,000 in Q3 2019 to a profit of $2.3 million. As a result of its strong showing in the third quarter, it upped its fiscal 2020 guidance from $140 million at the midpoint to $152.5 million at the midpoint.
Orion is definitely an under-the-radar type of penny stock opportunity.
Mistras Group (MG)
Market Cap: $127.9 million
Founded in 1978, the company originally known as Physical Acoustics Corporation, became Mistras Group in 2007. Two years later it completed its IPO. The company helps industries such as oil and gas keep their assets running safely. Oil and gas account for approximately 56% of its revenue with aerospace and defense (15%) and industrials (12%) helping carry some of the load.
Mistras’ core business involves the non-destructive testing (NDT) of assets, a market that’s estimated to be $14 billion worldwide. It has an approximately 4.5% share of the global NDT market.
In the near term, Covid-19 is causing delays in projects, especially in the oil and gas sector. As a result, it expects revenues to face declines in the second quarter, but that higher oil prices means the third and fourth quarters will likely see energy companies undertake testing projects they’ve postponed due to the pandemic and lower prices.
Down almost 70% year to date, Mistras is worth taking a closer look at.
Office Depot (ODP)
Market Cap: $1.3 billion
Definitely the largest of the penny stocks to buy discussed so far, it’s probably the best known as well. Who hasn’t been to Office Depot (NASDAQ:ODP) at some point in their life? It’s hard to believe ODP once traded over $40.
While it’s unlikely to get back to those lofty heights, aggressive investors ought to consider taking a flyer on this once-dominant office supplies retailer.
Office Depot announced a restructuring plan on May 18 that includes closing stores, distribution centers and reducing its headcount by 13,100 people by the end of 2023. The company expects the restructuring to save it $860 million in the next three-and-a-half years.
The company is moving to a business-to-business and IT services focus. The cuts will help it invest in growing these segments of its business.
Unfortunately, Covid-19 is hurting this segment at a time when it can ill afford to lose momentum. Fortunately, its retail stores have been deemed essential services during the crisis, so sales at its stores rose by 2% during the first quarter.
Over the past five years, Office Depot’s price-to-book ratio averaged 1.17. Today, it’s half that amount. I wouldn’t buy this stock if you really need the money, but if you can afford to lose the entire amount, the risk/reward is quite balanced.
Garrett Motion (GTX)
Market Cap: $362.8 million
Garrett Motion (NYSE:GTX) makes turbochargers for light and commercial vehicles. Until October 2018, it was part of Honeywell (NYSE:HON), when it was spun-off from the industrial conglomerate. Honeywell shareholders got one share in Garrett for every $10 shares in the parent.
How have shareholders made out? With dividends, they’ve probably broken even, but that’s about it. Trading slightly below $5 as I write this, it traded as high as $20 in April 2019.
On May 11, Garrett reported its Q1 2020 results. Sales fell by 8.5%, excluding currency, to $745 million, while its adjusted net income declined by 26% to $68 million. However, both its top- and bottom-line handily beat analyst estimates for the quarter.
During the company’s conference call May 11, CEO Olivier Rabiller stressed that despite its fastest-growing plant shutting down for six weeks during the first quarter — it’s in Wuhan, the epicenter of the global pandemic — it has fared better than many others operating in the global automotive sector and that speaks to Garrett’s global capabilities.
Down 52% on the year, Garrett could be the best buy of the bunch.
Information Services Group (III)Market Cap: $86.2 million
The smallest of the penny stocks to buy, good things come in small packages.
Information Services Group (NASDAQ:III) is a technology consulting firm that helps more than 700 clients transform their businesses through digitalization. It consults for 75 of the world’s top 100 enterprises. It’s a big deal despite its size.
Over the past year, III stock has drifted down from $3 in July 2019, to $1.80 as I write this, down 30% on the year.
What has been the problem? It’s hard to put my finger on it. The company does have operating expenses that are higher than the revenue it brings in but on an adjusted basis it does make money.
In the first quarter, it reported revenue of $63.7 million, flat to last year, excluding currency. In terms of the bottom line, its adjusted profit in Q1 2020 was $1.1 million, down 26.7% from the same period a year earlier.
The good news is that CEO Michael Connors believes that it will double its profitability in the second quarter compared to the first, despite the demand for its advisory services slowing due to Covid-19.
I wouldn’t bet the farm, but an increase in profits could result in a tangible jump in its stock price over the next three to six months.
To recap, the ten penny stocks that make the list are as follows:
- Banco Bbva Argentina
- Global Cord Blood
- Silvercorp Metals
- Newmark Group
- Smith Micro Software
- Orion Energy Systems
- Mistras Group
- Office Depot
- Garrett Motion
- Information Services Group
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.