Sourcing Best Penny Stocks Isn’t Easy, But Rewards Can Be Breathtaking
For the many millions of Americans with a brave disposition who are seeking supplemental income through the stock market, the question arises: what are good penny stocks to consider? After all, investing in the right penny stock can double or triple your investment near-instantaneously. There’s also the possibility that a fledgling junior company could turn into the next Microsoft Corporation (NASDAQ:MSFT) or Monster Beverage Corporation (NASDAQ:MNST).
There’s no greater feeling for a long-term investor than to hit the proverbial “20-bagger” (a stock whose value increases to 20 times its purchase price), especially since that’s almost as rare as a Bigfoot sighting. The best penny stocks can make such moves.
For the sake of clarity, let us define “penny stock.” Some investors define it differently, but we’ll run with the U.S. Security and Exchange Commission’s (SEC) definition, which is simply any stock trading for under $5.00. The SEC makes no distinction in terms of market capitalization or shares outstanding, so I won’t either.
The best penny stocks now tend to be ones with significant catalysts that grip investors’ attentions. Sometimes it’s all about timing. For example, many small capitalization security stocks jumped by 100%–1000% after the 9/11 attacks. We all know what Internet penny stocks did during the Tech Bubble. With the proper catalyst at a time when the sector is in focus, a company doesn’t necessarily need to be rock-solid for significant gains to be had (although the best performers have a legitimate business model).
To emphasize again, the key is the catalyst. Without that, it doesn’t matter how solid the balance sheet is or how legitimate the business model is. The stock will simply languish and torture you with price action that makes watching paint dry seem exciting in comparison. This is especially true with low daily volume and wide spreads, which can make it difficult to maneuver out of a position. Before you get in, have a general idea of the overarching catalysts likely to embody the stock.
The catalyst doesn’t necessarily have to be exciting headline news. It could be something as mundane as a low cost of production for a junior mining company, allowing for ramped-up growth when metal prices increase. Or it could be a deeply undervalued company, in a non-sexy industry, which simply hasn’t been discovered by the market yet. A catalyst is really a quantifiable company characteristic that can allow for price expansion once the proper conditions have developed.
The hot penny stocks for tomorrow often come in three self-defined and distinct categories. The first category features companies operating in emerging sectors sparsely covered by the media and dominated by insiders. The stock price doesn’t move much until the sector story starts entering the investor consciousness. They are very much forward-looking securities, with insiders piling in with an eye on the long term. These are the plays in which extreme patience is required, because short-term payoff is rare. Forward-looking investors with a keen eye for developing trends can do quite well by picking the best penny stock in the soon-to-be hot sector.
The second category of the best penny stocks is “falling stars.” These companies are former high-fliers whose star has been tarnished along the way. They may have faced difficulties with profitability or they are cyclical stocks in sectors which were decimated by failing economic conditions. Good opportunities tend to collect at the bottom of major market trough lows or crashes. These are times when indiscriminate selling reduces the share prices of viable companies down to penny-stock status. Many prescient investors got rich scooping up discounted equities after the U.S. Housing Bubble downturn. Some insurance companies and established home builders traded below $1.00/share, as if pricing in a future Chapter 11 bankruptcy.
A third category involves news catalysts that the market expects at a certain time. Biotech stocks are a perfect example; news of a U.S. Food and Drug Administration (FDA) approval, or of clinical trial results, can send a penny stock crashing or soaring. These types of stocks are not recommended unless you have specific non-insider information that you feel can tilt the odds in your direction.
The best penny stocks of tomorrow are out there today, awaiting the critical mass of investor buying to elevate them to new heights. It just takes perseverance and an analytical mindset to help you get there.
What Are Good Penny Stocks to Consider?
This isn’t an exact science, so please don’t expect it to be. For the best penny stocks to really stand out, they need exciting catalysts that a critical mass of investors really care about. In today’s environment of hyper-short attention spans and fast-moving news cycles, it isn’t easy to attract attention.
With that said, the list below attempts to cut the wheat from the chaff. These stocks may belong to any of the three categories mentioned above, with added emphasis on breakout potential.
This isn’t a complete analysis, so more due diligence and research is required. But hopefully it provides you with a guidepost in your quest to find a 20-bagger. Our other Lombardi Letter penny stock list may be of assistance as well.
List of Penny Stocks 2017 Poised for Price Expansion
|Company||Stock Price||Market Cap|
|Zix Corporation (NASDAQ:ZIXI)||$5.07||$271.7M|
|Adesto Technologies Corp (NASDAQ:IOTS)||$4.10||$65.30M|
|Innovative Food Holdings Inc (OTC:IVFH)||$0.61||$14.98M|
|Cyren Ltd (NASDAQ:CYRN)||$2.00||$78.33M|
|McEwen Mining Inc (NYSE:MUX)||$3.21||$961.4M|
1. Zix Corporation
Zix Corporation (NASDAQ:ZIXI) is an industry-leading provider of e-mail encryption, data loss prevention, and transmission services. Its technology enables users to transmit encrypted e-mail and documents to any address in the world. The company maintains an impressive client Rolodex, including the SEC, all Federal Financial Institutions Examination Council (FFIEC) regulators, seven divisions of the U.S. Treasury, 24 U.S. state financial regulators, 2,300+ U.S. financial institutions, 1,200+ U.S. hospitals, and more than 30 Blue Cross Blue Shield organizations.
Given the amount of scrutiny that e-mail security and hacking generated during the 2016 U.S. presidential campaign, and given its established foothold in the federal government, more contracts could come. Revenues and backlogs are all growing at high single digits, quarter-over-quarter, and net income is positive.
The company is currently trading just above penny stock levels, at $5.12/share, just under its 52-week high in January 2017 of $5.39/share.
2. Adesto Technologies Corp
Adesto Technologies Corp (NASDAQ:IOTS) sells memory and storage products for Internet of Things (IoT) devices. It makes a technology platform called “Conductive Bridging RAM” that overcomes a critical power barrier to widespread innovation. Adesto holds more than 100 patents, with dozens more in progress, and is working with world-leading companies across various industries to deploy its technology to the market. These markets consist of drones, smart grids, connected cities, and more.
The company is getting closer to profitability, at least on the basis of earnings before interest, tax, depreciation, and amortization (EBITDA). Adesto posted a fourth-quarter loss of $111,000, compared to a 2016 third-quarter loss of $2.0 million, and a 2015 fourth-quarter loss of $494,000. All the while, revenue continues to increase. Fourth-quarter revenue was $12.3 million, which is an increase of 10.3% from the 2016 third-quarter revenue of $11.2 million, and an increase of 4.3% from the 2015 fourth-quarter revenue of $11.8 million.
The share price has already more than doubled in 2017, so pullbacks may be your friend here. But the company appears poised for big things once the over-publicized “singularity” between connected networks comes to pass.
3. Innovative Food Holdings Inc
Innovative Food Holdings Inc (OTC:IVFH) is a still-obscure and cheap player in the emerging food tech market space. The company delivers specialty foods to consumers and chefs around the globe, and it has developed a platform to make it happen. This company trades at extremely favorable valuations. It has a market cap of only $15.25 million, which makes it among the most attractively priced companies in its space, and astronomically lower-priced than market darlings like GrubHub Inc (NYSE:GRUB).
The company’s financial performance appears solid. Full-year 2016 revenue increased 15% to $35.0 million, compared to $30.6 million in 2015. Net income grew, as did diluted earnings per share. IVFH could be among the best penny stocks, due to its limited downside and its growth potential.
4. Cyren Ltd
Continuing with the cyber-solutions theme, Cyren Ltd (NASDAQ:CYRN) is a leading provider of cloud-based web and e-mail security and anti-malware solutions. The company protects more that 600 million users globally, with a suite of cloud-based technology solutions. The company’s client list is impressive, including big companies like Google, Microsoft Corporation, Netgear, Inc., Intel Corporation, Dell Inc., and Deutsche Telekom AG.
Cyren’s revenues for full-year 2016 were $31.0 million, compared to $27.8 million for fiscal-year 2015, representing an increase of 12% year-over-year. The company is still not profitable, but it’s not far off.
5. McEwen Mining Inc
McEwen Mining Inc (NYSE:MUX) is a producing mining company that churned out 101,482 ounces of gold and 3.3 million ounces of silver in full-year 2016. In gold-equivalent-ounce terms, it produced 145,530 ounces. That’s a good start.
The company’s production cost figures look favorable. All-in sustained costs to produce one gold-equivalent ounce were $844.00 in third-quarter 2016. This was a major decrease from year-ago levels of $914.00. Since the company has no debt and has solid cash flow, as long as gold prices hold up, there are no liquidity concerns.
Investors who believe that gold prices are set to soar may be interested in this relatively obscure company. It could be among the best penny stocks in the junior gold space if that happens.