How to find the top penny stocks for outsized returns
Nation there is no other investment like penny stocks to make you rich and these companies are on fire this year! All you out there in the Nation, got in on shares of Veritone, ticker VERI, from our video October 7th when the shares were just $8.15 each…that’s a 177% return in two months or shares of LNG play Tellurian, ticker TELL up 130% since late September!
In this video, I’ll show you how I find penny stocks to buy, the actual process I developed as a venture capital analyst. I’ll share a penny stock investing strategy that will take the uncertainty out of trading and then reveal those five penny stocks to buy for 2021!
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Best Biopharma Penny Stock 2021
Let’s get to it and I know you want to get to those five penny stocks to buy so let’s dive right in and in between, I’m going to show you how to find these kind of high-return investments and a penny stock investing strategy.
Our first penny stock to watch is Verastem Oncology, ticker VSTM, a $354 million biopharma developing medicines to improve the survivability and quality of life for cancer patients.
And Nation, from somebody that lost both his parents to cancer, it is scary and painful shit! Any drugs or treatment that helps here is invaluable!
Now all biotech or biopharma plays are really about just two things, the company’s pipeline of products and cash survivability.
Verastem has five registrations starting or well into phase two trials by the end of the year and several others in phase one. We should get significant results for these next year that could be strong drivers for the shares.
Recent deal to sell Copiktra for $311 million gives this company a cash runway through at least 2024 so lots of time to hit that first blockbuster. It’s got over $168 million in balance sheet cash after paying down debt and its only major liability are notes due in 2048.
Now putting a price target on a biopharma stock is pretty much meaningless because you never know which drug will be developed and sold off but this is a $354 million company with half that in cash and one drug alone hat just fetched over $300 million, so these kinds of stocks can double fast.
And one of my favorite tools for investing in these penny stocks like we’ll talk about today is the stock simulator on Webull. The app gives you a million dollars in a paper portfolio to trade or follow your stock picks. It’s a great feature to test out your ideas before investing your own money.
Check out Webull because not only are you going to get the stock simulator feature but Webull is running a promotion right now to get four free shares of stock worth when you open an account and make your first deposit. It’s free money, helps support this channel and is an instant return so check that out if you’re not already on the app.
Best Cloud Tech Penny Stocks to Buy
Next up is Synchronoss Technologies, ticker SNCR, a $129 million provider of cloud- and software-based activation solutions for mobile users.
And talking about addressable market, this company is positioned as a leading cloud platform for mobile and ahead of what could be a boom in the 5G rollout. It brought on AT&T and TracFone as new customers last year and 80% of revenue is from recurring customers.
The company has 200-plus customers and more than 135 patents for a solid competitive advantage in cloud and messaging. A cost saving program this year helped it reduce operating costs by 17% and drive positive EBITDA growth even on slightly lower sales revenue.
I like this one at least back up to it’s 52-week high of $6.50 a share, which that alone would be a 121% return, but this is one that could run even further as 5G ramps up.
Criteria to Find the Best Penny Stocks
We’ve still got three penny stocks to watch but I want to take a minute to share what I’m looking for in a good penny stock investment. Those of you in the Nation, you know I’m not about to just drop five stock picks in your lap. That does nothing for you and I want you to be able to find these investments on your own and do your own analysis.
So there’s four keys I’m looking for when searching for penny stocks to buy. These go back to my days as a venture capital analyst, the process I created to find these early-stage companies with ten- and 20-X return potential.
First here is a management team that includes founders as well as some experience in finance and marketing. And this list of what to watch for is in no particular order but a good management team is critical. In fact, I’d say at least half of the startup investment deals I passed up working venture capital were for weakness in the people leading the company.
Next here, it’s all about growth and how big can the company become. I’m looking for companies with a giant addressable market and proven sales growth over the last few years.
Generally, this means sales growth of at least 20% or more over the last couple of years so that’s easy enough to screen for when you’re looking for stocks to buy. For the addressable market, that’s the size of the potential customer base and management’s estimate for what kind of market share they can take in the future.
And this information is found in the company’s financial reports or in presentations on its investor relations page. For example, researching Fastly, I found it was estimating a $35 billion market for its two segments and a compelling case for taking market share that’s turned into a nearly 200% return on the shares.
Most of these early-stage, penny stock companies aren’t going to be profitable yet but you want to see companies that can grow their sales while keeping costs under control so you’ve at least got that pathway to profitability.
Finally is going to take some research because you’ve got to find the companies with a competitive advantage.
These companies aren’t competing in an empty market. These startups are coming into industries with established players and they need a compelling reason why customers should switch. For example, with Zscaler, I saw a unique cloud-based security product that could take market share from the legacy providers that were still dependent on hardware and data-centers.
It takes a little time and some research but learn this process. Don’t just depend on some yahoo that looks great in a bow tie to be picking your stocks for you.
Best Biotech Penny Stock
Next on our penny stock list, Fortress Biotech, ticker FBIO, a $255 million biotech with most of its established products in dermatology but a strong pipeline of products across oncology, gene therapies and rare diseases as well.
The company already has five commercial products, which is rare for a small biotech, but these are driving $43 million in annual sales while the Fortress develops the rest of its pipeline.
Revenue increased 17% over the last year and the dermatology segment, it’s largest producer, is growing sales at a 29% pace over 2019. The company has two candidates in phase three trials with potential revenue of $790 million from Tramadol alone. Some other standouts here, a $175 million market on its CUTX candidate for Menkes disease and two others with sales potential in the hundreds of millions.
The pipeline is there and the company has over $218 million in balance sheet cash. That’s against just $55 million in debt, so plenty of cash survivability here for development.
Should You Trade Penny Stocks?
Two more penny stocks to watch but I want to talk about a penny stock investing strategy because I feel like a lot of investors out there have this all wrong.
Now you can make money trading penny stocks, buying in and selling after a forty- or fifty-percent return. And this is how a lot of investors do it. They’ll take that quick profit in a few months rather than staying in the stock.
The problem is, they end up selling their winners and holding on for dear life to the losers. They might get a 40% return on one stock but they hold onto a couple others and its just dead money for years until they finally realize a thirty- or forty-percent loss.
And what ends up happening is your portfolio return, so that group of five or ten penny stocks, only ends up producing a ten or fifteen-percent return at best.
Instead, think of your penny stocks like a venture capital investor would. You’re buying into this company and going to hold it until that five- or 10X investment exit through an acquisition or IPO.
This is going to mean holding all your penny stocks for at least three- to five-years. Giving these small, startup companies the time to grow and either be acquired or multiply sales by multiples higher.
Yeah, some of your penny stocks will be dogs. In fact, expect about four out of ten to be complete losers. But it’s the rest, those three to five stocks that go on to ten- and 20-times your investment that are going to take your entire portfolio to a twenty- or thirty-percent average return. That’s the venture capital way.
Best FinTech Penny Stock
Fourth on our penny stocks to buy list is Elevate Credit, ticker ELVT, a $114 million online lender to non-prime borrowers in the U.S. and U.K.
I actually recommended Elevate back in July when it was trading at $1.73 per share so it’s up about 75% but could still have a lot of room to run.
The entire lending industry has been hit hard this year. Investors have been worried that lower-credit score borrowers would default leaving these Fintech companies unprofitable.
Against this pessimism, management is cutting expenses and repurchasing shares. Loan growth will be weak this year but is expected to rebound in the fourth quarter or early 2021 and this is one of those rare penny stocks that is actually already profitable. The business turned profitable in 2017 and booked triple-digit income growth in the last two years.
I like Elevate back up to around $4 a share and there’s a good chance it gets there in the next year as things get back to normal.
Best Healthcare Penny Stock
This penny stock will surprise a lot of you, SeaSpine Holdings, ticker SPNE, a $411 million medical devices company designing surgical solutions for treating spinal disorders.
And the fact that shares are almost $15 each does not mean this isn’t a penny stock. The company has a market cap of just $400 million which means it’s still very small.
It’s a common misconception of penny stocks, that they have to be under five dollars a share or even under one dollar. Penny stocks are any company with a market cap under $500 million, a fast-growing company that’s high-risk, high-return potential.
Just an example then I’ll get back to SeaSpine, but ADT Inc, ticker ADT, is a $6.5 billion company…16-times the size of SeaSpine Holdings and yet the shares trade for $8 each.
Share price means nothing. It’s just a function of the market cap and the number of shares available so get it out of your head when you’re picking penny stocks.
The market for SeaSpine’s spinal implants and orthobiologics is $7.1 billion in the U.S. alone and the company has grown revenue to $160 million a year. Sales grew 11% last year and the company has been improving its margins for higher profitability. The company is developing new products for other end uses and has a pristine balance sheet with $93 million in cash and no long-term debt.
Penny stocks will make you rich like no other investment but you need to know how to find the best penny stocks to buy. Know the process for picking penny stocks and why you should invest instead of trade and you'll set yourself up for triple-digit returns and more.