Without a doubt, a portfolio should be overweight with companies that have strong fundamentals. In a bull market, these stocks provide healthy returns with the comfort of protection from capital erosion. However, there are several benefits that come with owning a small bag of penny stocks.
First and foremost, a good number of penny stocks can be purchased even with a small amount of money. Additionally, some of these stocks are from companies with a growing business and thus have potential for multi-fold returns.
On top of these factors, penny stocks have been a focal point for the army of Reddit traders and a growing number of Robinhood (NASDAQ:HOOD) investors.
Today, we’ll talk about the business fundamentals of these seven penny stocks that look positioned for a surge:
- Hive Blockchain (NASDAQ:HVBT)
- Transocean (NYSE:RIG)
- Iamgold (NYSE:IAG)
- Seanergy Maritime (NASDAQ:SHIP)
- Electrameccanica Vehicles (NASDAQ:SOLO)
- CarLotz (NASDAQ:LOTZ)
- Trivago (NASDAQ:TRVG)
Penny Stocks: Hive Blockchain (HVBT)
The company is a diversified player with a presence in Bitcoin and Ethereum (CCC:ETH-USD) mining. Last month, the company announced the purchase of 4,000 miners. Once this expansion is completed, the company expects to achieve $200 million in annual run-rate.
Additionally, the company is also making inroads in the high-growth segment of decentralized finance. In April 2021, the company completed a share investment in DeFi Technologies. It’s worth noting that deposits in DeFi applications surged from $1 billion in June 2020 to nearly $40 billion in January 2021. If this trend sustains, the company has significant growth potential in that segment.
In the first quarter of 2021, Hive Blockchain mined 165 Bitcoin and 21,500 Ethereum. For the same period, the company reported adjusted EBITDA of $13.7 million. Once the new miners are deployed, Hive Blockchain is positioned for multi-fold growth in EBITDA.
HVBT stock looks attractive at its current level around $3. If the positive momentum for cryptocurrencies sustains, it is likely to see double-digit prices in the next 12 to 18 months.
With Brent oil remaining firm around $70 per barrel, I am bullish on offshore drilling service providers. RIG stock has already trended higher by 47% year-to-date (YTD). As order intake accelerates, the stock is positioned for further upside.
Transocean has 39 floaters that are focused on ultra-deep water and harsh environment drilling. In the last few years, the company has modernized its fleet through divestitures and acquisitions. As oil stocks trend higher, Transocean is well-positioned for growth with a modern fleet.
It’s worth noting that as of May 2021, the company reported an order backlog of $7.4 billion. This provides near-term revenue and cash flow visibility. I also believe new contracts will be made at a higher day-rate. This provides scope for EBITDA margin expansion in the foreseeable future.
Transocean also has a healthy liquidity buffer of $2.5 billion. The company is fully financed through 2022 considering the cash buffer and expected cash flows from backlog execution. If industry recovery sustains, Transocean will also be positioned for deleveraging.
RIG stock touched a high of $5.13 in its recent rally. The stock has corrected to its current level around $3.50. I would not be surprised if it sees a renewed rally that takes the stock to new highs.
Penny Stocks: Iamgold (IAG)
Gold prices have declined recently in response to inflation concerns that imply a rate hike could come sooner than expected. However, even if rates are increased, real interest rates are likely to remain negative for an extended period. For that reason, I believe the price of gold is likely to trend higher again.
IAG stock is one of the best penny stocks from the gold mining sector. It has corrected by 16% in the last month, which has created a good buying opportunity.
As of 2020, Iamgold reported proved and probable reserves of 13.9 million ounces (Moz). Furthermore, the company has a total resource base of 23.9 Moz. With these robust numbers, the company expects production growth in the range of 50% to 95% over the next three years. This is a key reason to be bullish on IAG stock.
It’s worth noting that as of the first quarter of 2021, the company reported $968 million in cash and equivalents. Additionally, the company had $500 million in undrawn credit facilities. With a liquidity buffer of $1.5 billion, Iamgold is well-positioned to pursue aggressive production growth.
On the flip side, the company reported an all-in sustaining cost (AISC) of $1,324 per ounce for Q2 2021. Its AISC is high compared to bigger players in the industry like Newmont Corporation (NYSE:NEM) and Barrick Gold (NYSE:GOLD). However, if gold does trade around $2,000 per ounce in the medium-term, Iamgold is still positioned to deliver healthy cash flows.
Seanergy Maritime (SHIP)
Seanergy is engaged in seaborne transportation of dry bulk commodities that includes iron ore and coal. The company stands to benefit from its accelerating global growth.
It’s worth noting that for Q2 2021, Seanergy reported gross revenue of $28.9 million, which was higher by 209% on a year-over-year (YOY) basis. The company also reported an adjusted EBITDA of $10.8 million compared to a negative EBITDA of $2.1 million in the prior year. Clearly, there has been a strong turnaround in financials that seems likely to sustain in the coming quarters.
Another important point to note is that the company is continually increasing its fleet size. In the second quarter of 2021, it rose by 45%. This is likely to translate into sustained top-line growth.
Seanergy has strong relationships with companies like Rio Tinto (NYSE:RIO), Vale (NYSE:VALE) and Glencore (OTCMKTS:GLCNF). As demand for industrial commodities remains firm, the company’s fleet utilization is likely to increase.
With positive tailwinds in the industry and Seanergy’s expanding fleet, SHIP stock looks poised for a significant rally from its price of $1.10.
Penny Stocks: Electrameccanica Vehicles (SOLO)
After a 52-week high of $13.60, SOLO stock has slumped to its current level around $3.50. Profit booking and equity dilution have contributed to the stock’s decline. However, it seems the worst of the downside is over.
The company has designed the Solo: a single-seat, three-wheeled electric vehicle (EV). The first model is already through the prototype and pre-production phase. Production for customer delivery began in August 2020 with an expected capacity of 20,000 vehicles annually. Currently, production is outsourced to a manufacturing partner in China.
Pricing is the key differentiating factor for the Solo. The model has a base retail price of $18,500.
One factor that could impact sales of the vehicle is the Covid-19 pandemic. If carpooling and multi-passenger rides become less popular in favor of single-seater EVs, it could be a big opportunity for Electrameccanica.
Currently, the company is expanding its retail footprint in the United States. Electrameccanica has already announced an assembling facility in the country. It’s likely the company will try to do its own manufacturing if sales gain traction.
In the coming years, it also plans to expand into other markets globally. Considering the growth outlook for EVs over the next ten years, Electrameccanica is positioned to benefit with its unique offering.
Investors seem to have lost confidence in the CarLotz growth story. In the last six months, the stock has slumped 57% and currently trades at $3.85. However, I believe the selling is overdone and a strong reversal might be in the cards for LOTZ stock.
Recently, the company announced results for Q2 2021. Revenue surged by 92% to $50.8 million. However, the markets were disappointed as the company withdrew its financial outlook for 2021. According to CarLotz, the key reason was “continued disruption caused by the chip shortage and the corresponding lack of visibility into the wholesale market and commercial vehicle sourcing.”
However, I believe this is a near-term headwind that has already been accounted for in its stock price. CarLotz is continuing to expand its hub footprint, and with an asset-light mode, the long-term cash flow outlook is positive.
It’s also worth noting that the consignment-to-retail used vehicle marketplace has ample growth potential. According to the company’s estimates, the market is fragmented with less than 1% e-commerce penetration.
From a margin perspective, the company reported retail gross profit per unit (GPU) of $2,175 for Q1 2021. On a YOY basis, retail GPU increased by 17%. It’s likely that cash burn will decline in the coming quarters.
Penny Stocks: Trivago (TRVG)
Travel and tourism stocks have remained depressed as the pandemic continues to impact leisure travel. However, with a global vaccination drive underway, there is hope for the industry.
TRVG stock has trended higher by 38% in the last 12 months. However, the stock has been in consolidation mode in the last two quarters. Another breakout on the upside seems likely if the global economy crawls further toward normalcy.
Trivago offers access to five million hotels and other types of accommodation in more than 190 countries. The company has 54 localized websites and apps available in 32 languages. With a big addressable market, TRVG stock is attractive with gradual industry recovery underway.
It’s worth noting that for the first half of 2021, the company reported revenue of 133.7 million euros. For the same period in 2019, revenue was 432.6 million euros. Clearly, revenue is still significantly below pre-pandemic levels. However, with pent-up travel demand, the coming year is likely to be stronger.
Overall, TRVG stock touched highs above $5 in March 2021. After a meaningful correction, the stock trades at $2.76 per share. With an improving travel outlook, TRVG stock seems poised to double from current levels.
On Penny Stocks and Low-Volume Stocks: 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.
On the date of publication, Faisal Humayun held a long position in HVBT. 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.