How to Find the Penny Stocks to Buy for 10X Returns
Hey Bow Tie Nation, Joseph Hogue here with the Let’s Talk Money channel and one of my favorite themes in penny stock investing, investing in the companies that will change the way we live over the next five- or ten years.
Because this is really where penny stocks, those smallest of the small companies, this is where they have the advantage over the big mega-cap players.
You see, those giant companies like Amazon and Apple, management is tasked constantly with trying to beat the next earnings estimates. That’s every three months and heaven help them if they miss, so strategy is completely focused on the short-term.
Penny stock companies though can look further out. Most of these aren’t profitable yet and investors aren’t expecting much near-term. These startups can shift their focus to being first to the world of tomorrow, getting the jump on the big players and making billions in the process.
In this video, I’ll show you how to find the penny stocks that will change the world. We’ll start with a stock screener, then I’ll show you how I’m analyzing penny stocks and a strategy for consistent double-digit returns. Then I’ll reveal the five penny stocks I’m buying for the long-term, five candidates for potentially 10X returns and higher.
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How to Screen for Penny Stocks
I’ll be using Stockcard to start our penny stock research. I’ve been using the platform lately and really its simple stock screener and how it builds the most important investing ratios into these visual stock cards for analysis.
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First I want to start with the screener on Stockcard and one of the things I like about this is I can screen for themes. So you know I like this Featured Themes tab that shows me stocks in some of those huge trends like COVID testing, electric vehicles and scrolling all the way down, Companies Shaping the Future.
But what’s even more interesting is I can create a filter to screen stocks within that theme. If I search for Companies Shaping the Future, the drop-down shows me the collection, then I can use the rest of these filters to narrow the list.
I’ll select for the smallest companies here, generally I’m looking for anything under a billion-dollar market cap when I’m screening for penny stocks to buy.
I’ll also filter for good sales growth because that’s really what we’re talking about. Those companies that are growing revenue by twenty or thirty-percent a year consistently.
And if I click apply filter, I see I’ve narrowed it down to 20 companies I can research further.
Researching Penny Stocks to Narrow the List
From there, I can start to research these companies but understand, the research we do on larger companies, those established stocks, doesn’t work here. There aren’t going to be operating profits so you can’t look at the op margin or the PE ratio. You need different criteria when you’re picking penny stocks.
For penny stock investing, I’m really looking at two ideas; the size of the potential market and the competitive advantage of each company. How big can the market become for this world-changing product and why will one company get there before anyone else.
The Biggest Penny Stock Investor Mistake
With this you’re going to be able to start a list of penny stocks and then narrow it down to the best investments but I want to clear up something about penny stocks that most investors don’t understand.
I talk to a lot of investors, and I see this every day in the comments, and most are short-term trading their penny stocks. They buy into a stock and if the shares don’t surge within a month or two, they dump it.
Nation, that is not how to invest in penny stocks!
Penny stocks, so again we’re talking extremely small companies less than maybe a $500 million market cap, these are a lot like the startups I used to analyze for venture capital investors. And the strategy here isn’t to jump into a few, make a quick seventy- or 80% return, and sell out or to cut your losses if the shares drop.
These are stocks you’re holding for at least three- to five-years, companies that can grow from that $500 million market cap to $5 billion or more.
I want to show you a chart of returns on startups by angel investors. Those of you in the Nation have seen this chart before, it’s a study by Willamette University of over 3,000 startup investments. This shows the exit multiple on the investment, so how much times the initial investment those angel investors got back. For example a 5X multiple is five-times your money or say fifty-grand on a ten thousand dollar investment.
And look at the bar on the left, less than 1X return, that’s 50%, half the investments return less than the original investment or even zero. One-in-three startups goes bust.
Nation, you should fully expect a third of your penny stock investments to go bust or be dead money for years. I know it sounds weird and of course, everyone thinks they can pick only the winners, but this is the reality of this kind of high-risk, high-return investing.
The tradeoff is in these other columns. You’ve got about two-in-ten of your penny stock investments returning 5, 10 and 30-times your investment.
Take all these together, the losers and the winners, and you get an average annualized return of 27% on these kind of portfolios.
That’s where I want your head to be at when looking at penny stocks to buy. Don’t expect every one to surge higher and just because one or two lose money, don’t think your process is flawed.
This is why that theme of investing in penny stocks that are shaping the future is so powerful. You’re holding on to these for three- to five-years. A few will probably go bust but the ones that do change their industry are going to be 10- and 20-times your money!
Top Penny Stocks to Buy for the Future
Now let’s put all this together for five penny stocks to watch that could shape the future and produce those triple-digit returns.
First here is Inseego, ticker INSG, an $896 million hardware and software-as-a-Service provider for the 5G market.
The company has a history as a first mover in hardware and just recently advanced its cloud solutions portfolio with that software applications offer which could really drive sales.
The addressable market for 5G is enormous and will continue to grow for years. 5G will be at the heart of the most transformative changes over the next five years. Changes in streaming, autonomous vehicles and the Internet of Things revolution all depend on 5G speed. So unlike earlier changes from three- and 4G, this affects much more than just mobile connectivity and the opportunity is on the order of many times greater.
Inseego is just getting into the pocket for that 5G revenue growth with sales up 44% in the last quarter and expected 36% higher on the year.
I am kicking myself on this next one, $180 million Cleanspark, ticker CLSK, a leader in energy software and control technology.
I’ve been following Cleanspark for a couple of weeks, wanting to do a video but just didn’t pull the trigger…and it’s up 14% last week as I was planning this video.
That said and keeping with that long-term strategy, I think this one has a lot farther to go. The company provides the software that directs energy microgrids as well as hardware and consulting services. Microgrids are THE transformation in energy with electric vehicle charging, renewables and storage.
Total microgrid capacity is expected to increase more than five-fold from 3.5 gigawatts to 20 gigawatts over the next decade and a 28% annualized growth globally to a $40 billion market.
The company has doubled annual revenues for three consecutive years, booking 181% sales growth last quarter. Cleanspark has a contract backlog of $6.4 million and a pipeline of projects that could add another $12 million to sales.
Beyond that penny stock growth, the company has a pristine balance sheet with $40 million in cash and just $1.4 million in total liabilities, so some great financial flexibility here to keep up that growth.
Next here is Intellia Therapeutics, ticker NTLA, a leading gene editing biotech with a strong pipeline and solid growth.
Intellia is on the edge of that CRISPR technology, editing human genes to cure genetic diseases, but I also like that its in the ex-vivo segment of the market as well that can create therapies for other types of diseases in immune-oncology and autoimmune diseases.
The company is larger than most of the penny stocks on the list at a market cap of $1.5 billion but that’s still startup for a biotech play. Intellia has a pipeline of five en-vivo treatments and an undisclosed pipeline of five-plus ex-vivo therapies. Two of these are already in phase one and two trials so potentially could be releasing news very soon and the company is partnering with heavy-weights like Regeneron and Novartis on some of these programs.
Revenue has grown an annualized 38% over the past three years and increased to 46% last quarter but the real growth is still a year or so out as these pipeline programs move through phase three.
Intellia has over $436 million in balance sheet cash and some great partners on these programs so all the financial survivability it needs to develop a blockbuster therapy.
Veritone, ticker VERI, is a cloud-based AI platform I highlighted early in October before shares surged 25% though its settled to a 7% gain for the month.
This is what I’m talking about in that longer-term penny stock strategy. I heard from a lot of investors that got spooked when that initial 25% return came down a little and maybe they sold out with a ten- or fifteen-percent gain. Now, that’s pretty damn good for a one-month return but I think this stock could go a lot farther over the next few years.
Veritone is the convergence of what will be three of the biggest trends over the next decade; data analysis of audio and video content, cloud-based connectivity and an AI platform that learns to become more effective.
And the market for these speak for themselves, the company’s aiWARE platform is facing markets with double-digit annual growth and tens of billions in opportunities. Revenue has jumped 244% in the last two years and was even able to increase in the tough second quarter.
Our next stock, $500 billion Mitek Systems, ticker MITK, is a leader in mobile capture and identity verification with over 7,500 customers mostly in financial services.
There is a huge market for identity verification on that shift to mobile with the company estimating a $12.7 billion market by 2024 touching nearly every sector. The company has grown revenue at a 32% annualized pace since 2012 and I think it’s just scratching the surface here.
Their booking $85 million in revenue on a market potential in the tens of billions. Once the software reaches that critical mass of customers though, I think this thing moves into more sectors beyond financials and just blows up.
This idea of investing in future stocks is the best way to find penny stocks that can produce 10- or even 20-times your money. Buy these penny stocks that are going to be changing the world and then hold on for at least three- to five-years to watch a handful climb higher for double-digit returns. Check out that stock screener on Stockcard and sign up using the promo code bowtienation for an exclusive discount.