It seems that the definition of penny stocks may be changing again. I say that because, in researching this article, I came across a screening tool that defined penny stocks as those trading for $10 or less. That was a first for me. Generally, penny stocks are defined as names trading for under $5 per share.
Of course, I don’t particularly have any qualms with that higher-price definition. However, for this article, I’ve stuck to the $5 threshold with the exception of a single stock on the list. Still, as always, trade carefully when you’re dealing with penny stocks. As you may already know, they are often very volatile.
That caveat aside, indications are that the stocks listed below have more upside potential than downside. In fact, most have some form of near-term catalyst, making them great buys for December. So, without further ado, let’s get into these picks:
- Esports Entertainment (NASDAQ:GMBL)
- Vertex Energy (NASDAQ:VTNR)
- American Resources (NASDAQ:AREC)
- Foresight Autonomous Holdings (NASDAQ:FRSX)
- Obseva (NASDAQ:OBSV)
- Gerdau (NYSE:GGB)
- Marrone Bio Innovations (NASDAQ:MBII)
Penny Stocks: Esports Entertainment (GMBL)
First up on this list of penny stocks, the ticker for GMBL stock likely gives away the business in which Esports Entertainment operates. This company is an e-sports and online gambling firm serving the full spectrum of e-sports and gaming betting. It also maintains partnerships with NFL, NBA and FIFA teams, making it a sports gambling play as well.
The allure of GMBL stock is that it is already taking advantage of the burgeoning e-sports and iGaming industry. The company’s most recent earnings report was very strong. For example, GMBL reported $16.4 million in revenue. That was strong on a sequential basis, up from $8.8 million in the prior quarter. Just a year earlier, the company had recorded a far smaller $222,000 in revenue for the same period as well.
Esports Entertainment also recorded a sizable profit of $10 million during the period. Profits were up 92% sequentially from the $5.2 million recorded in the prior quarter.
This firm has provided guidance of $100 million in 2022 revenues at the lower end. That should interest anyone looking for an e-sports stock at a cheap price. The only arguable knock against GMBL stock here is that it trades just above $5, making it the sole exception I alluded to before.
Vertex Energy (VTNR)
Next up, Vertex Energy is a Houston-based refiner and marketer of oil. Based on that brief definition, you might easily imagine that the company operates oil derricks and sells crude oil by the barrel. But in fact, Vertex Energy is actually essentially an oil recycling company. It’s one of the largest processors of used motor oil in the United States, possessing the capacity to refine and recycle 115 million barrels of oil annually. That refined oil, known as black oil, is then sold on for further refining, chemical processing and chemical blending.
So, the reason to consider purchasing VTNR stock right now? Mainly, the company is sitting in a strong position; its third-quarter results were very positive. For the period, Vertex Energy posted $10.6 million in net income, up from a $2 million loss in the prior-year quarter.
Vertex also entered into an agreement to purchase a Mobile, Alabama refinery from Royal Dutch Shell (NYSE:RDS-A) for $75 million earlier in the year. Optimism around that deal as well as advantageous economics recently led the firm to increase its guidance for 2022. Previous expectations of $2.2 billion to $2.4 billion in revenues for 2022 have been increased to between $2.4 billion and $2.5 billion.
Finally — in addition to that, or perhaps because of it — all three analysts covering this stock rate it as a Buy. According to the Wall Street Journal, analysts give this pick of the penny stocks a consensus target of $19 per share. That makes it a potential steal, considering the current price of just under $5.
Penny Stocks: American Resources (AREC)
As with most penny stocks, the share price of American Resources could easily swing either way. If investors view it solely from a fundamental, analytical perspective, they’ll likely think AREC is too risky. After all, the company reported a net loss of $8.9 million in Q3. That’s a reversal of fortune from the prior-year period, when it posted a modest $124,000 in net income.
However, if you consider American Resources within the broader context of current catalysts, a different picture emerges. That’s because the company produces metallurgical coal used in the raw manufacture of steel. Given that infrastructure is about to get a gigantic stimulus, steel is in a huge position to benefit.
That makes AREC stock worth considering. Currently, the two analysts covering this pick have it as a buy with a target price of $3.53. Today, the stock is priced at around $1.90 per share.
If that’s not enough, American Resources is also “focused on the extraction and processing of […] critical and rare earth minerals for the electrification market […] and reprocessed metal to be recycled.” This implies it has potential upside in other burgeoning markets. For now, though, consider AREC stock for the steel angle.
Foresight Autonomous Holdings (FRSX)
For this next pick of the penny stocks, try to remember back to late 2020. At that time, electric vehicles (EV) special purpose acquisition companies (SPACs) were very popular. Further, investors were keen to find out which EV components might be the next “it” sector to catch fire. In particular, cameras and vision systems used for autonomous driving (AD) in both EVs and traditional vehicles received a lot of speculation from investors.
Of course, not long after that, the EV SPAC bubble deflated. As a result, the market calmed down a bit when it came to AD technology as well. However, assuming that the currently renewed interest in EV stocks and high valuations trickles its way down, FRSX stock could soon catch a tailwind.
Roughly a week ago, this company announced that it had completed a two-week series of demonstrations of its technology for 19 vehicle manufacturers and Tier One suppliers. Those particular demonstrations were carried out in conjunction with Teledyne (NYSE:TDY), taking place in both Silicon Valley as well as Detroit.
Essentially, the bull thesis for FRSX stock right now is that demand for advanced driver assistance systems (ADAS) will only gain traction over time. Moreover, shares of this name are particularly attractive because they have massive upside from their current price, based on analyst projections. Today, Foresight trades for a little over $2. Meanwhile, two analysts give the stock a Buy rating and an average price target of $9.50.
Penny Stocks: Obseva (OBSV)
Next up on this list of penny stocks, Obseva focuses on women’s reproductive health. The company is a clinical pharmaceutical firm that develops drugs to treat conditions which compromise birth, from pregnancy through delivery.
The allure of biotech stocks like Obseva is their potential to skyrocket upward very quickly. But that movement is also almost always catalyzed by one thing: regulatory approval. Basically, get U.S. Food and Drug Administration (FDA) clearance and you get paid.
Right now, Obseva is waiting patiently for such news. Currently, the company is expecting to receive Committee for Medicinal Products for Human Use (CHMP) marketing approval for its Linzagolix drug in Q4. The drug is being marketed for its efficacy against uterine fibroids. The firm expects to receive study results in Q4 as well for Linzagolix in the treatment of endometriosis.
Finally, though, Obseva is also advancing its other therapeutics along the pipeline. Those therapeutics have utility in preterm labor and in vitro fertilization, respectively.
If all goes according to plan, there’s significant upside potential for OBSV stock. Currently, this name trades a little above $2. However, analysts have given it a $12.50 average target price. OBSV could pop any day, given its catalysts.
Of course, it’s always logical to ask how much a given investment could appreciate as well as what might catalyze that appreciation. For this next pick of the penny stocks, if we consider analyst consensus target prices, the answer to the first part of that question is 54%. As of the Nov. 23 close, GGB stock traded at $4.53. However, its consensus target price is $6.98, according to the Wall Street Journal.
So, the answer to the second half of that question? The main reason that Gerdau stock could appreciate are the rapidly increasing steel sales in the U.S. from the infrastructure deal. This company is a Brazilian steel firm with significant North American operations. Outside of its home country, North America is one of its largest markets. The firm reported the equivalent of $1.18 billion in sales in North America in its most recent earnings results.
If Gerdau can capitalize on increased steel purchasing in the U.S., there’s every reason to believe this stock should move upward. The company’s North American business division was operating at 90% capacity, according to recent earnings. Gerdau also recorded historically high 20% EBITDA margins in the segment, in addition to high utilization rates.
Penny Stocks: Marrone Bio Innovations (MBII)
The last entry on this list is MBII stock. I recently wrote about Marrone Bio Innovations in another penny stock article. My bull thesis for investing in the company was fairly straightforward:
“The reason to believe that MBII stock could move upward in the coming weeks is the strong quarterly results […] [If] investors take a look at the company they should be impressed.”
In Q3, Marrone Bio Innovations reported a 12% revenue increase, reaching $9.9 million. Furthermore, gross profits increased from $5 million to $6 million on a year-over-year (YOY) basis.
I still believe that fundamentally makes MBII stock worthwhile. That said, since I wrote my previous article, MBII dropped from 84 cents to around 73 cents. That means there’s roughly 230% upside if it rises to its consensus price of $2.44. Timing penny stocks is essentially impossible, but reasons for optimism around MBII stock remain clear.
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On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.