Based on how the market’s acting lately, now may not seem like the best time to get into penny stocks. With interest rates rising, investors are moving out of riskier assets, and into safe harbors. Growth stocks, from Big Tech companies all the way down to microcaps, continue to plunge in price.
At first glance, that sounds like bad news for low-priced, speculative plays. To a large extent, this is true. Penny growth plays, such as the ones that soared during last year’s meme stock mania, are in freefall. As fundamentals again take precedence over hope and hype, many of the more bubbly penny names have more room to fall before the dust truly settles.
But while it may be best to avoid low-priced growth stocks today, that may not be the case with more value-oriented cheap (in terms of share price) stocks. As value, which for years has lagged behind growth, is coming back into vogue. Coupled with company-specific events/improvements, this could mean there’s a path to higher prices.
So, which penny stocks are buys, as market volatility sends this category lower? These seven, all firmly in the value stock category, are well positioned to bounce back/soar higher, appear to be such plays:
- Acacia Research (NASDAQ:ACTG)
- 1847 Goedeker (NYSEAMERICAN:GOED)
- Hudson Technologies (NASDAQ:HDSN)
- Mesa Air (NASDAQ:MESA)
- Ammo Inc (NASDAQ:POWW)
- POSaBIT Systems (OTCMKTS:POSAF)
- Salem Media (NASDAQ:SALM)
Penny Stocks: Acacia Research (ACTG)
A net operating loss (NOL) shell ACTG stock has been a longtime favorite of the microcap value investing community. Previously monetizing its tax-loss carryforwards by buying and monetizing patents, with the entrance of hedge fund Starboard Value as a main shareholder, it began to take a new approach.
That new approach? Buying undervalued companies, and turning them around. It has completed a few relatively small deals. But it may have a big one just around the corner. That is, Acacia Research is the lead investor in a group that’s offered to buy department store chain Kohl’s (NYSE:KSS).
Granted, this deal is a bit up in the air. Financing is still pending, although investment bankers have provided what’s known as a “highly confident letter” to the consortium. A bidding war may emerge as well. Yet, whether or not Acacia ends up owning a piece of Kohl’s, this is a sign that under its current leadership, this still under-the-radar company could make a similar big move.
To both fully monetize its NOLs, as well as create value for shareholders. Given its complex nature, you may want to do further research. Still, keep it on your watchlist, as it’s a stock that could perform well, even if it’s a while before it’s boom times once again for the market.
1847 Goedeker (GOED)
Last year, 1847 Goedeker went from hidden gem to Reddit stock not once, but twice. Since then, it has languished at low single-digit prices. The appliance online retailer currently trades at around $2 per share, down around 78.3% over the past twelve months.
So, as the meme-stockers, not to mention other types of investors, have jumped ship, why dive in yourself today?
As a Seeking Alpha commentator argued last month, the play here hasn’t changed. In other words, there’s still merit in buying this as a bet that, by combining its existing operations with recent acquisition Appliances Connection, paired with growing demand, will result in a massive boost to its profitability.
This, in turn, will result in a big move higher for shares, as the market gives the stock a valuation more in line with its more richly-priced peers. Now, make no mistake, if there was 100% certainty this plan would work out, GOED stock would be at such bargain basement prices.
Yet weighing its triple-digit percentage upside potential, against the risk it continues to sink? It looks like a favorable proposition. One of the better risky bets out there in the land of penny stocks, now may be an opportune time to buy.
Penny Stocks: Hudson Technologies (HDSN)
Most penny stocks are down massively from where they were a year ago. But that’s not the case with shares in Hudson Technologies. At around $3.5 per share, the refrigerant services company is up over 200% during this same time frame.
After winning big, you may think the ship’s sailed for new investors. For investors already in it, now may be the time to cash in one’s chips. HDSN stock hasn’t been immune to the market’s recent downturn. However, while the near-term could remain choppy, it may be premature to say it’s topped out in price.
As Louis Navellier recently pointed out, it’s still a cheap stock valuation-wise, despite the big run-up. Its forward price-to-earnings (P/E) ratio at present is 7.65x. Furthermore, the company could continue to benefit from both e-commerce and environmental-based tailwinds.
To top things off, this small name could be a takeover target for a larger industrial services firm. With many ways to keep on winning, Hudson Technologies is an appealing bargain. That’s not to say it won’t become more of a bargain (i.e. dip lower) between now and when it takes off again. Nevertheless, entering a small position now, adding to it on any further weakness, could be a profitable move in hindsight.
Mesa Air (MESA)
When it comes to air travel recovery plays, investors have focused largely on the major airline stocks. Think legacy airlines like American (NASDAQ:AAL), or even discount carriers like Southwest Airlines (NYSE:LUV).
But even as the market sell-off has moved both these major names, plus other airline stocks, lower, a smaller name like Mesa Air may be the better way to bet that the aviation industry finally puts the pandemic behind it within the next year.
Mostly, due to the high potential for MESA stock to go parabolic again the next time society becomes confident that “Covid-19 is over.” That’s what happened in late 2020, when the rollout of vaccines created initial optimism that 2021 would bring an end to the pandemic era. Compared to post-Covid earnings projections, earnings are cheap. In Fiscal 2023 (ending September 2023), sell-side analysts project between 50 cents and $1.25 per share in earnings. That’s low compared to its current stock price ($4.92 per share).
If this pans out, Mesa Airlines could soar in price in anticipation of better results over the next two years. Consider it another potential buy. Market and pandemic uncertainty could keep it depressed for now, making today’s prices a solid entry point.
Penny Stocks: Ammo Inc (POWW)
The market has been bearish on most firearms industry stocks for the past year. After 2020’s big run-up in gun sales, investors have feared a repeat of the mid-2010s gun glut, and have cashed out of names like Smith & Wesson (NASDAQ:SWBI) and Sturm Ruger (NYSE:RGR).
So too, have shares in Ammo Inc. However, while gun shortages have eased, along with glut fears, the same can’t be said about ammunition. Look up the phrase “ammo shortage,” and you’ll find scores of headlines indicating this continues to be a problem for firearms enthusiasts.
Due to sky-high demand against limited supply, the company expects to continue to post strong results. Just recently, management reiterated its revenue guidance for Fiscal 2022 (ending Mar. 31), projecting $250 million in earnings. Presumably, this means the company will hit earnings estimates for the FY as well (43 cents per share).
Trading at a low multiple to earnings (11x) as it drops lower, the market may be erroneously cashing out of POWW stock. Based on its current trajectory, don’t be surprised if this plunge carries on. Perhaps, to the point where it gives back all of its post-2020 gains, and makes it back to between $2.50 and $3 per share. You may want to ease into it, yet still consider it another possible bargain for 2022.
POSaBIT Systems (POSAF)
With the penny stocks discussed above, their “value stock” bona fide are readily apparent. Admittedly, that’s less the case here with POSaBIT, a provider of point-of-sale (POS) payment services to the marijuana industry.
Sure, in terms of share price, POSAF stock looks cheap. It changes hands today for just over $1 per share. But using metrics like price-to-sales (P/S) or P/E? This ancillary pot play looks downright expensive. Based on its current market capitalization (around $125 million), it trades for around 8x sales. Still in the red, you can use its P/E or even its enterprise value/EBITDA (EV/EBITDA) ratio to back up the case it’s a value play.
However, with trailing twelve month (TTM) revenue growth of 227%, and guidance that suggests that its revenue will grow at an incredible rate over the coming year (from between $19.5 million and $20.5 million, to between $36 million and $39.5 million), it may be apt to say that POSaBIT is growth at a more than reasonable price.
There are some risks with its business model. Its continued growth hinges a lot on the American pot industry staying in a legal grey area. Yet as it pulls back due to the market’s current volatility, after a more than 590% surge in price over the past year, this is another strong performing penny stock that could continue to deliver.
Penny Stocks: Salem Media (SALM)
As my InvestorPlace colleague Will Ashworth recently pointed out, Salem Media, primarily a Christian radio broadcaster, is a clear-cut value play. Not only is it a cash flowing business trading at a low multiple. You can argue it is a deleveraging play as well.
Monetizing its real estate assets, the company is adding liquidity to its balance sheet, and is paring down long-term debt. Salem has also recovered fully from the pandemic-driven drop in revenue for its radio business. TTM revenue of $253.6 million is in line with its pre-pandemic (2019) revenue levels.
Much of this operational improvement is reflected in the price of SALM stock. At around $3 per share today, it’s at prices well above where it was two years back. Although gains from here may come much more slowly than seen in 2020 and 2021, it may continue to be a solid performer.
Assuming, of course, that it continues to maximize the value of its real estate holdings, plus puts its cash flow to work via debt reduction efforts. A continued shift to digital media (Salem owns a portfolio of Christian and conservative-themed web properties as well) could also help give it a higher valuation over time. Perhaps more of a slow-and-steady play, yet one to keep on your radar nonetheless.
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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.