Investors are always on the hunt for cheap stocks. That can be defined by a low valuation or a low stock price. When it comes to the latter, penny stocks are often a controversial topic.
Because let’s put it this way: Penny stocks are often penny stocks for a reason. High-quality companies pulling all the right moves don’t usually find their stocks trading in this group.
I define penny stocks as companies with a share price of about $5 or less.
Some investors won’t touch penny stocks. Others trade or invest in these names exclusively. Investors who dabble in this arena must accept a higher degree of risk.
Further, there tends to be less liquidity with this group, so wide trading ranges and volatility should be expected.
At the end of the day, investors must simply remember to appreciate the risk of these stocks and use proper position sizing to account for that risk. For all we know, we could wake up tomorrow and these stocks will be worthless.
With all that in mind, let’s look at a few penny stocks to start off the year:
- Opko Health (NASDAQ:OPK)
- Rolls-Royce Holdings (OTCMKTS:RYCEY)
- DHT Holdings (NYSE:DHT)
- Mustang Bio (NASDAQ:MBIO)
- RealNetworks (NASDAQ:RNWK)
- CaixaBank (OTCMKTS:CAIXY)
- Clovis Oncology (NASDAQ:CLVS)
Penny Stocks to Buy: Opko Health (OPK)
Trading near $4.50, Opko Health could be an ideal penny stock for speculators. If shares can find momentum, perhaps the stock can retest the 52-week high from July near $6.50. If it does that, the stock will be good for a 47% rally. On the flip side, $2.90 to $3 has been support.
A few years ago, this was a double-digit priced stock. Heck, in 2015 shares of OPK stock were trading for more than $19 a piece.
The company is leveraging technology with medicine, deploying mass-scale novel coronavirus testing that gives customers a unique ID to access events. Could this quickly become mandatory for planes or events? Possibly, but there’s no guarantee it will. Even if it does, Covid-19 will (hopefully) not be here forever.
While the company is not yet cash flow positive or profitable, Opko has a solid balance sheet. Total assets of $2.37 billion easily tops total liabilities of $747 million. Obviously the company has to deliver, but it’s showing promise.
Rolls-Royce Holdings (RYCEY)
A friend brought Rolls-Royce Holdings to my attention, mentioning it during a conversation about Boeing (NYSE:BA) and whether that stock was finally back in business.
It’s looking more and more likely that the world is building pent-up demand to get back to regular life. With a vaccine here and starting to work through the public, it will hopefully only be a matter of time before we return to a state of normalcy.
When that happens, vacationers and business travelers alike will be back in the airports and flying like there’s no tomorrow. I don’t know when, but eventually airlines will be stuffed and cruises will be full.
That will spur demand for new jet orders and with it, jet engines, which will get Rolls-Royce back in action.
Admittedly, the business has been going through a tough time as a result of the pandemic. But as long as it can hold out — and I think it can — then RYCEY stock could outperform down the stretch. Keep in mind, shares saw a 52-week high of $9.21 less than a year ago. Now the price is hovering above $1.50.
DHT Holdings (DHT)
DHT Holdings and some of its other shipping peers are starting to fetch a bid. As the world wakes up from its novel coronavirus sleep, demand is going to go through the roof.
Personally, I feel that this is an under-appreciated story — the resurgent demand for all things pre-coronavirus. When that surge comes back, we should see the worlds’ ports pick up in activity. As a result, shippers should be on investors’ radar.
Technically, this one just slipped out of penny stock territory. In November, shares cleared the $5 mark and haven’t broke below since. Most recently, bulls bid DHT stock up to multi-month highs, as shares closed at $5.73 on Jan. 8.
To me, it’s still close enough to penny stock territory to be considered in the group. As recently as April 2020, this stock was north of $7.
It’s definitely possible that DHT Holdings can’t maintain momentum and falls back below $5. In that case, $4.50 could be on the table. For now though, bulls seem to be garnering control.
Mustang Bio (MBIO)
Mustang Bio is a name that some investors may already be familiar with. The clinical-stage biopharma company was flagged on Oct. 28 as one our seven cutting-edge biotech stocks to watch. It is focused on potential cures for hematologic cancers, solid tumors and rare genetic diseases.
On that date, shares closed at $2.56 and already, the stock is north of $4.50. Obviously there’s been some excitement in the stock ahead of the American Society Of Hematology Annual Meeting (ASH Conference) scheduled for mid-January. The company will present data on its non-Hodgkin lymphoma treatment.
This company has shown some real promise. Obviously biotech is a bit more of an all-or-nothing approach. Typically, these companies are in binary situations, where their drug or treatment will either make it to or through Phase 3 testing and the stock will soar or it won’t and it will decline by 50% or more in a single session.
Mustang Bio is no different and that’s exactly how investors should approach it. The CEO Manuel Litchman is also the company’s founder and continues to be a big insider buyer of the stock.
In May he scooped up 180,000 shares, followed by another ~153,800 shares in June. In December, Litchman stepped in and bought another 100,000 shares, while director Lindsay Rosenwald bought 200,000 shares.
In November, RealNetworks put in a very nice base. Over seven trading sessions in an eight-session span, shares hit a low between $1.22 and $1.24. In the one session that it didn’t, shares hit a low of $1.26.
Even though RNWK stock has pulled back by about 10% from the recent high, it’s still almost 40% above this base. For speculators, perhaps this dip is in an opportunity to buy the stock.
One problem with penny stocks? Any investors doing their due diligence may have a harder time doing so. Digging through the typical SEC filings is fine and should still cause little to no trouble. However, there is less coverage from the analyst community.
For example, there are no consensus estimates for this stock. That can make it hard to judge what type of growth a company may experience. Further, with less scrutiny from investors and analysts, discovering the fraud stocks becomes more difficult for those less qualified in digging through the numbers.
I’m not saying that’s the case for RealNetworks — just that one’s due diligence becomes more difficult. In the most recent quarter, management had this to say, which I found promising:
Our commitment to improving business performance led to our fifth consecutive quarter of year-over-year improvement in our adjusted EBITDA loss. Our two largest growth opportunities remain our free-to-play Games, which grew 60% year-over-year, and the SAFR platform.
Spanish banking group CaixaBank is an interesting penny stock to consider.
With its $17.1 billion market capitalization, this is far from the stock that investors would expect to see on this list. However, it’s a name worth digging a little deeper on. Barcelona-based CAIXY stock has had a difficult run.
However, the stock is up nicely from its low near 50 cents during the March 2020 selloff. If it can find some momentum this year, could it get to the $1.75 to $1.85 area where it topped in 2018?
If we see the global economic recovery that economists are hoping for this year, banks should be big beneficiaries of a stronger economy. Last month, shareholders voted in favor of the bank’s merger with local rival Bankia in a deal that will form Spain’s largest domestic lender.
Throw in the fact that this penny stock pays out a 1.9% dividend yield and investors may have even more reason to take notice. Further, the company is actually profitable.
Clovis Oncology (CLVS)
Last but not least, we have Clovis Oncology. Investors should be familiar with this name. In July 2017, this stock hit a high above $99, as its market cap pressed the $5 billion mark.
CLVS stock was a decently well-known biotech spec play with lots of promise in the oncology space. Now sporting a 52-week low below $4 and currently hovering near $5.50 though, and it’s clear things haven’t panned out for this name.
Remember what we said about Mustang Bio, which is that penny stock biotech companies tend to be an all-or-none proposal. Either the plans work out and the stocks soar or they don’t and they are total duds.
Surprisingly, Clovis is forecast to grow revenue 13% to this year to $161.5 million. In 2021, analysts expect an acceleration in growth, up 26.3% to $204 million. If the company can deliver and cut down its cash burn, then this stock could have upside.
There have been some negative analysts price targets too, but most recently H.C. Wainwright analysts slapped a $15 price target on this name. With a market cap below $500 million, Clovis could also be an M&A candidate for a larger firm looking for potential growth.
Its balance sheet is becoming a bit more strained, which is another reason the stock is in penny stock territory, but if it can deliver, there’s reason to believe this name could rally.
On the date of publication, Bret Kenwell held a long position in RYCEY.
With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks. Read More: Penny Stocks — How to Profit Without Gettting Scammed