Seasoned investors know that some of the greatest stocks of today started out small, as penny stocks under $5. For example, in July 2015, Advanced Micro Devices (NASDAQ:AMD) was below $2. Now it is well over $50. Proactive management and the right growth strategies have meant stellar returns for AMD shareholders.
Yet not all penny stocks go on to make higher highs in a matter of few years. Some trade sideways for a long time and some even go bust. Therefore, anyone considering investing in penny stocks would need to appreciate the risk/return profile that may be offered by such a company.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock “generally refers to a security issued by a very small company that trades at less than $5 per share … [They] are generally considered speculative investments. Consequently, investors in penny stocks should be prepared for the possibility that they may lose their whole investment (or an amount in excess of their investment if they purchased penny stocks on margin).”
On a given day, millions of market participants trade penny stocks. Some win money and some lose money. What is clear is that penny stocks have an important place in the markets.
With that in mind, here are three penny stocks that may be poised for big gains:
Let’s look at what makes each of these stocks hold significant promise heading forward.
Penny Stocks to Buy: Ambev (ABEV)
Current Price: $2.68
52-week Price Range: $1.90-$5.45
Brazil-based Ambev is the largest beer manufacturer in Latin America. Its operations extend to 17 nations in the region as well as Canada. InvestorPlace readers would likely remember that Anheuser-Busch Inbev (NYSE:BUD) has a majority ownership in Ambev. The group’s beer brands include Skol, Brahma, Antarctica and Presidente, among others. Ambev also offers proprietary carbonated soft drinks as well as non-alcoholic and non-carbonated drinks.
In early May, Ambev released Q1 2020 results. Net revenue saw a decline of 1.6% while volume decreased by 5.6%. It reported 2 cents earnings per share for the quarter, missing analysts’ estimate of 4 cents. They were adversely affected by the ongoing recession in Latin America as well as the challenges brought by the novel coronavirus pandemic.
CEO Jean Jereissati Neto issued the following assessment of the damage inflicted by Covid-19:
“Panama, Dominican Republic, and Bolivia were hit the hardest. Those countries had more severe restrictions on people circulation, adopting on and off trade opening hours in alcohol sales ban. Brazil suffered quite a bit, given the relevance of the on-trade channel, which was significantly impacted by state and local government measures to contain the spread of the virus. Argentina, Paraguay and Chile suffered less because our volumes are heavily weighted toward the off-trade channel. Canada volumes benefited in the short term, given the pantry loading. It has been challenging to manage through COVID.”
As a result, ABEV shares have been suffering. In March 2018, they were over $7. By January 2020, the stock was down to $4. And in March, it hit an all-time low of $1.90. To the delight of shareholders, it has recently staged a solid comeback as ABEV stock now trades around $2.68.
If you also feel that you may be able to raise a glass to Ambev in future quarters, then ABEV stock should be on your radar for penny stocks that are poised for big gains in the future. However, it is important to remember that ABEV stock will generally mirror the moves in Brazil’s Bovespa stock market index. Therefore, expect volatility in the shares.
Enel Chile (ENIC)
Current Price: $3.91
52-week Price Range: $2.95-$5.11
Chile-headquartered Enel Chile is an important energy company. It is part of Grupo Enel, a multinational energy company and one of the world’s leading integrated electricity and gas operators. It also owns and operates renewable energy projects.
As the 2019 Annual Report highlights “2019 was a particularly challenging year, not just for Chile, but also for our Company. As a country, we lived through a period of protests and social movements in which thousands of fellow citizens raised their voices to demand profound changes in the way we organize our society.”
Then came the difficulties of the Covid-19 pandemic of 2020. In early May, Enel Chile released Q1 financial results. Since March, the group’s emphasis has been on business continuity and stability supported by digitalization.
As a result of these difficult months over the past two years, ENIC stock has suffered. In 2016, the shares were well over $6.5. They started January 2019 shy of $5.5 and ended the year around $4.75. But by March 18, 2020, ENIC stock hit an all-time low of $2.95. Now it is just under $4.
At the end of 2019, the company had 7,303 megawatts of installed capacity with 129 generation units, including 40 hydroelectric, 21 thermal, 59 wind powered, 8 solar and 1 geothermal generation units, as well as distributed electricity to approximately 1.97 million customers.
In June 2019, Moody’s Corporation (NYSE:MCO) confirmed the international rating of Enel Chile S.A. when it received a “Baa2” rating with a stable outlook. According to Moody’s, obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and may possess speculative characteristics.
Put another way, ENIC stock offers investors the opportunity to participate in the growth of an important Latin American country. But it comes with risks, too. After further due diligence, you may find that Enel Chile belongs in a group of penny stocks that may be poised for big gains in the future.
Current Price: $2.93
52-week Price Range: $1.08-$4.25
Arizona-based Zovio is an education technology services company. It partners with higher education institutions and employers to deliver educational solutions to their students and employees. The company has around 1,500 employees in several states.
The group currently owns Ashford University. However, it will likely separate into two organizations, with Ashford becoming a self-governed, nonprofit higher-education institution with its own Board of Trustees. In addition, Zovio offers Constellation, its learning platform, Waypoint Outcomes, its assessment software and its mobile application technology.
In late April, Zovio released Q1 results for the three months ended March 31. Revenue came at $97.9 million, compared with revenue of $109.8 million in Q1 2019. Its non-GAAP diluted income quarterly loss was 10 per share. A year ago, the loss had been 12 cents per share.
However, the year-over-year student numbers were not quite in the direction that shareholders would have liked: “Total student enrollment … was 35,335 students at March 31, 2020, compared with total student enrollment of 39,095 at March 31, 2019.”
ZVO stock got listed in Nasdaq in April 2019. Before, it was trading as Bridgepoint Education on the NYSE. At the time, ZVO stock was shy of $7. By late March 2020, it hit an all-time low of $1.08. Now, it is hovering at $2.9. That is a return of over 160% in three months.
The pandemic has changed the way we live, work and seek education. In the coming months and years, we are likely to see an increased move toward online education at all levels, including continuing corporate education for employees. As the group builds out solutions for growing education services markets stateside, I believe ZVO stock may reach new highs. The company may also be acquired, which would be welcome news for shareholders. Thus, Zovio is one of the penny stocks that may be poised for big gains in the future.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.