Penny stocks can be broadly categorized as stocks that trade below $5. In most cases, penny stocks are small market capitalization or micro-cap stocks. With social media playing a big role in the investment world, penny stocks have been in the radar.
Being largely small-cap stocks, investors need to remain cautious. The best is to allocate a small part of your investment portfolio toward penny stocks. That’s particularly true when the broader market valuation looks stretched.
My focus — as it has always been — is on penny stocks that are non-speculative in nature. In other words, companies that have reasonable business fundamentals. It’s not just about a “pump-and-dump” rally.
Let’s talk about seven penny stocks that are worth buying at current levels.
- Boqii Holding (NYSE:BQ)
- Tuniu Corporation (NASDAQ:TOUR)
- Electrameccanica Vehicles (NASDAQ:SOLO)
- Borr Drilling (NYSE:BORR)
- GasLog Partners LP (NYSE:GLOP)
- Teekay Corporation (NYSE:TK)
- Kuke Music (NYSE:KUKE)
Penny Stocks to Buy for July: Boqii Holding (BQ)
Boqii Holding shares surged to a high of $12.80 in February. After a sharp correction, BQ stock currently trades at $4.90. The stock has been in a consolidation zone and another break-out seems likely as investors look for value.
Boqii is pet-focused platform in China and the company’s growth has been robust. For fiscal year 2021, the company reported revenue of 1.0 billion CNY ($154.7 million). On a year-on-year basis, revenue growth was 31.3%. For the same period, the number of active buyers increased by 35.2%. The average revenue per user also increased by 33.2% to 635 renminbi.
With strong growth metrics, BQ stock looks good for an upside from current levels. The company’s sales have also been diversified through Boqii Mall and third-party e-commerce sales channels. This provides wider product visibility. Further, omni-channel sales seems to be the way forward for most retail companies.
On the flip-side, Boqii reported negative EBITDA margin for 2021. The company has a cash buffer of 460.8 million renminbi to address the near-term cash burn. It’s very likely that EBITDA margin will improve. The key factors being strong revenue growth and operating leverage. BQ stock is therefore an attractive name among penny stocks.
Tuniu Corporation (TOUR)
Tuniu is a leading online leisure travel company in China. It goes without saying that the company’s business has been crushed by the Covid-19 pandemic.
However, with China vaccinating people at a robust pace, the travel and tourism industry is likely to see better times ahead.
TOUR stock has been in a gradual uptrend. In the last six months, the stock is higher by 27% and currently trades at $2.44. A strong break-out seems likely on the upside after the current consolidation phase.
For Q1 2021, the company reported revenue of $11.8 million, which was lower by 55.5% on a year-on-year basis. However, for Q2 2021, the company expects YoY revenue growth in the range of 320% to 340%. Clearly, a recovery is underway for the travel and tourism industry. Strong numbers in the next few quarters can translate into a meaningful upside for TOUR stock.
From a financial perspective, the company has cash and equivalents of $198.6 million. Tuniu believes that the cash buffer is sufficient to meet the capital expenditure and working capital requirements over the next 12 months. The company is therefore positioned to see through the crisis without the need of any additional financing.
Overall, I believe that TOUR stock is a worth pick among the penny stocks. A strong rally is likely as industry headwinds dissapate.
Electrameccanica Vehicles (SOLO)
The electric vehicle industry is likely to grow at a robust pace in the next decade. Positive industry tailwinds make Electrameccanica stock another attractive name to consider among penny stocks.
As an overview, the company is in the production stage of a single-seater EV. The company’s first vehicle is branded as SOLO. The model is already in the production stage. Currently, Electrameccanica has an annual production capacity of 20,000 vehicles.
The key differentiating factor for SOLO is the pricing. The base MSRP is $18,500 and the pricing is likely to attract a middle-class household. Another factor to like about Electrameccanica is that the company is pursuing an asset-light model. Currently, SOLO is being manufactured in Chongqing, China.
However, once demand picks-up, it’s likely that the company will have its own manufacturing unit. Electrameccanica is increasing its retail footprint through the United States. As of Q1 2021, the company had presence in 20 retail locations. If marketing yields results and sales gain traction in the next few quarters, SOLO stock is likely to surge from current levels.
From a long-term perspective, Electrameccanica is also looking for expansion in Europe and Asia. However, for now, a positive initial sales response in the United States can take the stock higher.
Borr Drilling (BORR)
With the melt-down in oil prices last year, offshore rig providers like Borr Drilling had a challenging time. However, Brent oil has recovered significantly and is trading above $70 per barrel. As the economic outlook improves, it’s likely that oil will remain firm.
BORR stock is an attractive penny stock in the offshore rig segment. Currently, the stock trades at 81 cents. I would not be surprised if the stock doubles from current levels in the next few months.
For Q1 2021, Borr Drilling reported revenue of $48.4 million and an EBITDA loss of $10.6 million. However, the company reported 17 new contracts or contract extensions during the quarter. This implies a potential backlog of $458 million.
If the order flow remains robust, the revenue visibility is likely to increase significantly in the next few quarters. Once a majority of warm-stacked rigs are operational, Borr Drilling will be positioned to generate healthy cash flows.
Additionally, as the offshore rig market improves, the company’s modern rigs can command a higher day-rate. This will translate into a steady improvement in EBITDA margin.
Recently, Borr Drilling also entered into a memorandum of understanding with its Mexico partner. In Mexico, the company has five rigs working for the joint venture. However, payment delays have impacted the company’s working capital position. The MoU is likely to streamline operations and improve liquidity. This is just another factor that can translate into upside for BORR stock.
GasLog Partners LP (GLOP)
GLOP stock is worth adding in the portfolio of penny stocks that also pays dividends. Currently, the partnership unit has a cash distribution yield of 1.04%. Further, it seems likely that cash distribution will increase going forward.
As of Q1 2021, GasLog Partners had a fleet of 15 LNG vessels. The fleet currently has an average charter duration of two years, which provides revenue and cash flow visibility. For the quarter, the partnership unit reported revenue of $87 million and an adjusted EBITDA of $64 million.
It’s worth noting that GasLog Partners retired $36 million in debt during the quarter. With no committed capital expenditure, de-leveraging is likely to continue. Therefore, with a stronger balance sheet, stable revenue visibility and a healthy liquidity buffer, GasLog seems attractive.
Another important point to note is that in June 2021, the company announced new charter agreements with Cheniere Energy (NYSE:LNG), Total and Royal Dutch Shell (NYSE:RDS.A). As overall market conditions improve, it’s likely that the company will be positioned for longer-term contracts. This will further boost the revenue and cash flow visibility.
Teekay Corporation (TK)
Teekay provides international crude oil and gas transportation service. TK stock has been in an uptrend and trades near 52-week highs. However, the upside momentum is likely to sustain.
It’s worth noting that with the recovery in the global economy, it’s likely that demand for oil and natural gas will increase. As global oil inventories decline, OPEC production increase will trigger demand for tankers. This is positive for the company’s growth.
Currently, the company has interest in Teekay LNG Partners (NYSE:TGP) and Teekay Tankers (NYSE:TNK). The former is the world’s largest owner and operator of LNG carriers. Teekay Tankers is an owner and operator of mid-size crude tankers.
Besides the industry tailwinds factor, the wind-down of the company’s FPSO segment is another positive. Once the wind-down is completed, Teekay Corporation will be positioned to de-leverage.
From a financial perspective, Teekay Corporation has a liquidity buffer of $183 million as of March 2021. With improving outlook for Teekay Tankers and Teekay LNG Partners, it’s likely that the company’s liquidity buffer will continue to improve.
Kuke Music (KUKE)
After listing at $10.10 in January, Kuke Music shares have been in a steady downtrend. At current levels of $5, KUKE stock looks attractive for a potential reversal. The company is a provider of classical music licensing, subscription, and education services in China.
For Q1 2021, Kuke reported revenue growth of 85% to $1.7 million. The company’s smart music education revenue increased by 786.9% to $1.0 million. Kuke Music is therefore at an early growth stage. If the smart music segment continues to grow at a healthy pace, the stock has ample room for upside.
In June 2021, Kuke Music announced that smart piano educational content has been added in China’s pre-school music education curriculum. Currently, its being deployed in more than 4,000 kindergartens in China.
Therefore, the company has a big addressable market and as subscription revenue increases, cash flow is also likely to swell. KUKE stock is therefore attractive after a meaningful correction and a strong upside is likely from current levels.
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Read More: Penny Stocks — How to Profit Without Gettting Scammed
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
