With the rise of the Reddit army and meme stock trading, penny stocks have been in focus. There are some penny stocks that are purely speculative. However, there are others with decent fundamentals.
Given the current investment scenario and strategies, I would not hesitate to allocate some funds to these penny stocks. It’s worth noting that American Entertainment (NYSE:AMC) stock was trading at $2 at the beginning of the year. Currently, the stock is higher by over 2,422%.
Of course, I am not suggesting that all penny stocks can deliver similar returns. However, even if one or two stocks from the penny stock portfolio fire, it’s enough to boost portfolio returns. AMC stock is a good example. The poster child of meme stock trading, GameStop (NYSE:GME) is another good example.
This column will focus on seven penny stocks that are trading below $1. I believe that these companies have fundamentals worth talking about. If market sentiment remains positive, these penny stocks can deliver healthy returns.
Let’s take a deeper look into the following names:
- Borr Drilling (NYSE:BORR)
- Nexe Innovations (OTCMKTS:NEXNF)
- Gold Standard Ventures (NYSE:GSV)
- Zomedica (NYSE:ZOM)
- Naked Brand Group (NASDAQ:NAKD)
- Bombardier (OTCMKTS:BDRBF)
- Pyxis Tankers (NASDAQ:PXS)
Penny Stocks Under a Penny: Borr Drilling (BORR)
BORR stock is among the top penny stocks from the energy space. Currently, the stock trades at 90 cents and looks attractive for a breakout on the upside.
Brent oil is already above $70 per barrel and option traders are betting on oil returning to $100 per barrel. With accelerating global GDP (gross domestic product) growth and expansionary monetary policies, this seems likely.
As a provider of modern offshore drilling rigs, Borr seems well positioned to benefit from positive industry tailwinds. For the first quarter of 2021, the company was awarded 17 new contracts with a total backlog of $458 million in potential revenue.
As the order backlog swells along with an increase in day-rates, Borr Drilling is positioned to generate healthy EBITDA (earnings before interest, taxes, depreciation and amortization) and cash flows. Currently, the company has 10 warm stacked rigs and five rigs under construction. Even at a day-rate of $80,000, these rigs can deliver an annual EBITDA of $150 million.
Clearly, with higher order intake, BORR stock seems positioned for a surge in the next few quarters. If oil does sustain above $70 per barrel, offshore rig contracts will be increasingly more long-term than short-term in nature. This will significantly improve the order backlog and cash-flow visibility.
Nexe Innovations (NEXNF)
Nexe Innovations is a Canadian company that’s focused on reducing the use of plastic pods. In particular, among coffee consumers globally. The company believes that more than 56 billion single-use coffee pods are discarded in landfills annually.
To overcome this challenge, the company has a patented NEXE pod, which is plant-based and fully compostable. By Q3 2021, the company expects to have a production of 25 million coffee pods. Production is likely to be ramped up to 220 million by Q1 2022. Therefore, the company is at a growth inflection point. Nexe is also looking at licensing out technology to large brands.
Besides the coffee pods, Nexe Innovation has also launched the XOMA superfood brand. The company’s current products include mushroom and keto coffee. In the coming quarters, more products are likely to be launched. This also serves as a revenue upside factor.
In February 2021, Nexe also announced the development and prototyping of single-use disposable facemasks. The plant-based face mask could be another possible gamechanger for the company in the coming quarters.
NEXNF stock has declined in the recent past due to equity dilution. However, with a strong cash buffer, the company is positioned for growth and investment in innovation. It’s likely that the stock will break out on the upside after some consolidation.
Gold Standard Ventures (GSV)
Higher inflation has been a major concern in the recent past. However, central banks have maintained that expansionary monetary policies will sustain. Gold currently trades at $1,880 an ounce. If the rise in inflation is sustained, a big rally in gold is impending.
It’s a good idea to own some large caps and some penny stocks from the gold mining sector. GSV stock looks interesting at current levels of 59 cents.
As an overview, Gold Standard has 20,000 hectares of land package on the Carlin Trend. The company is the largest land holder on Carlin Trend behind Nevada Gold Mines. According to the company’s pre-feasibility study, the asset has eight years of life. Further, the all-in-sustaining-cost is expected at just over $700 an ounce.
Even if gold is at $1,600 an ounce, the company estimates an after-tax net present value (NPV) (5%) of $387 million. GSV stock currently trades at a market capitalization of $207.4 million. Clearly, valuations seem attractive with gold near $1,900 an ounce.
The company’s program for the current year aims at increasing potential reserves through exploration at Pinion & Dark Star. If there is an upside in resource assessment, it will translate into re-valuation.
Overall, GSV stock is a good bet among penny stocks, with higher precious metal prices being the key positive factor.
Zomedica (ZOM)
Earlier this year, ZOM stock touched a high of $2.91. However, after equity dilution and a capital raise of $173.5 million, the stock has corrected and currently trades at 90 cents. This looks like a good opportunity to accumulate the stock.
As an overview, Zomedica is an animal health company. The company’s first product TRUFORMA is already in the markets. The product is a biosensor platform for the detection of thyroid disorders in dogs and cats. TRUFORMA is also for the detection of adrenal disorders in dogs.
Recently, the company also hired Greg Blair for acquisition and licensing efforts. Greg has previously been associated with companies like Elanco Animal Health (NYSE:ELAN) and Johnson & Johnson (NYSE:JNJ).
As of March 2021, Zomedica reported $276.6 million in cash and equivalents. The company seems well positioned for product portfolio expansion in the next few years. This is likely through internal product development as well as acquisitions.
In terms of near-term catalysts, the company expects to accelerate revenue from TRUFORMA sales in the next few quarters. Healthy growth on a quarter-on-quarter basis is likely to take the stock higher.
Naked Brand Group (NAKD)
NAKD stock has corrected from January 2021 highs of $3.40 to current levels of 68 cents. I believe that it’s among the attractive penny stocks to consider.
As an overview, Naked Brands is in the business of intimate apparel and swimwear products. With the pandemic accelerating the shift to e-commerce, the company announced a business transformation plan in January 2021. Naked Brands intends to focus solely on the e-commerce platform, and the company is in the process of divesting its brick-and-mortar segment.
An obvious advantage for Naked Brands is low capital investments. To accelerate the business transformation, the company has raised funds through equity dilution. That’s one of the key reasons for a sharp correction in the stock.
As of Q1 2021, the company reported cash and equivalents of $270 million. This gives the company ample scope for investing in the online platform. At the same time, Naked Brands is looking for acquisitions. Progress on these fronts can result in renewed stock upside.
Overall, NAKD stock seems like a speculative bet. However, if the company can accelerate growth through the online channel, the stock has scope for ample upside.
Bombardier (BDRBF)
BDRBF stock has trended higher by 135% in the last six months. However, with the economic recovery, the positive momentum is likely to sustain.
As an overview, Bombardier is in the business of manufacturing business jets and commercial aircraft. For Q1 2021, the company reported revenue of $1.3 billion with 80% of the revenue coming from the sale of 26 aircraft. For the same period, the company reported EBITDA of $123 million, which implies an EBITDA margin of 9.2%.
It’s also worth noting that as of March 2021, the company reported an order backlog of $10.4 billion. This provides revenue visibility for the coming quarters. On the flip side, the company reported cash used in operations of $372 million for Q1 2021. If the company can reduce the cash burn, BDRBF stock is likely to trend higher.
Bombardier also has some debt maturities over the next few years. However, I don’t see debt refinancing as a concern. Recently, the company initiated a debt offering of $1.2 billion. The primary objective of the offering was to refinance debt due in 2021 and 2022.
Further, the company also had a cash position of $2.6 billion as of March 2021. This gives the company buffer to cover the near-term cash burn. Overall, if the order book swells and if the EBITDA margin improves, BDRBF stock is well positioned for further upside.
Pyxis Tankers (PXS)
PXS stock has been in a tight range in the recent past. A breakout on the upside seems imminent for this small-cap stock. Pyxis has a fleet of five tankers that transport refined petroleum products. Another tanker is expected to join the fleet in July 2021.
With the economic downturn and production cuts in the United States, the time-charter rate for the company’s fleet was negatively impacted. However, as oil trends higher on gradual economic recovery, the worst seems to be over for the industry. For Q1 2021, U.S. refining utilization was at 87%, which was the highest since March 2020.
For Q1 2021, the company reported revenue of $4.3 million at a time-charter equivalent rate of $10,865. However, the company was at a loss at the operating level. This is likely to change in the coming quarters as TCE rates improve. As a matter of fact, 100% of the company’s available days for Q2 2021 have been booked at an average rate of $13,330 per day.
Pyxis Tankers is also well positioned from a financial perspective to pursue vessel acquisition once recovery in time charter rates sustain. With possible industry tailwinds, PXS stock looks attractive at current levels of 88 cents.
On the date of publication, Faisal Humayun was long Borr Drilling (NYSE:BORR) stock. 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.
