Take advantage of a once in a decade opportunity to buy penny stocks
Penny stocks are entering a once in a decade opportunity but you still have to know how to find the best investments. In this video, I’ll reveal why every investor needs to start looking at cheap stocks and how I find stocks with two and 3X potential.
Then I’ll reveal three penny stocks to buy that could double within the next year.
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Why Now is the BEST Time to Buy Penny Stocks
Nation, there is no doubt penny stocks can make you a LOT of money. Two from our penny stock list last month are surging. Shares of education services platform Zovio have jumped 34% and Quantum Corporation recommended at $3.35 per share is now up over 43%!
And while this is usually the part in every penny stocks video where you hear a BIG BUT like penny stocks are extremely risky and not guaranteed…right now is actually one of the best times to start investing in these cheap stocks.
The reason is because as that uncertainty around the economy builds up and as smaller companies get squeezed, penny stocks just get destroyed. The iShares Micro-Cap ETF, ticker IWC, a penny stocks fund shown in blue here got slammed 43% to mid-March and is still underperforming the S&P 500 index of large companies.
So not only are these small cap stocks trading at blood in the streets valuations here, if you do your homework and use what I’m going to show you next to find strong companies, these stocks will rebound in a BIG way! Any small company that has the financial strength to survive over the next six months will have a clear runway to ride economic growth for years.
How to Find the Best Penny Stock Picks
I want to start out by showing you how to find the best penny stocks, give you a process to follow to find which stocks have that rebound potential. Then I’ll reveal three penny stocks I’m buying for my own portfolio and why.
I’ll be putting these stocks first in my paper portfolio in the Webull app and then into my real portfolio on the platform. I love using the stock simulator here. Webull gives you a million dollars to test out your strategies and stocks in this paper portfolio. I can add the stocks to my portfolio, get all the charting and news I need to follow the investment and track it until I know I want to invest.
Now just because we’re coming into a great time to invest in penny stocks doesn’t mean you can just throw your money at anything. There will still be companies that fail and others that never really produce a return.
So I want to walk through my criteria for picking the best penny stocks, companies I know will survive this economy and do well in the rebound.
Screening for Penny Stocks
I’ll usually start by screening for companies under a billion dollars market cap because that’s really what we’re talking about with penny stocks. I might go as high as $2 billion if I find something I really like but generally I want to keep it to smaller companies with the flexibility to move faster than larger competitors.
And I know companies worth hundreds of millions may not sound like penny stocks but when you’ve got companies just coming to market, issuing shares at a billion-dollar valuation, then a few hundred million is still very small.
Then I’ll look for companies in this list with a competitive advantage or outlook and that might sound a little vague but this kind of qualitative analysis is super important in penny stocks. You have got to find the companies that can apply a real advantage to their flexibility and speed to take quick market share. That’s going to lead to booming sales first and then either a bump in the share price or an outright buyout from a bigger company.
Next I’ll look at the income statement and what I want to see here is growth in sales and optimally slower growth in operating expenses as well. If I can find a fast growing company that maybe is seeing higher expenses but those aren’t growing as fast as sales, then the company is not only booking more revenue but becoming more profitable as well.
Finally before we get to those three stock picks, I’ll wrap up my search looking at the balance sheet and that survivability we’ve been talking about on the channel. So here I’m looking for enough cash on hand that the company can make interest payments and expenses if sales weaken. I’m also looking for companies with low long-term debt or at least an improving debt picture.
The idea of survivability is so important right now and any company with the balance sheet strength to make it through the next six months or so is really set up to move higher.
My Favorite Penny Stock List
So going through my checklist, I found three penny stocks to buy, three that I’m really excited about that I wanted to share.
First is Entasis Therapeutics Holdings, ticker ETTX, and at a market cap of just $80 million this is one of the smallest penny stocks I’ve ever bought.
Entasis is a biopharmaceutical focused on development of antibacterial products to treat infections caused by multi-drug resistant bacteria. Basically when someone is on a lot of medications, they can get exposed to all kinds of bacteria that isn’t easy to shake so these drugs Entasis is developing are going to be extremely important.
Management recently confirmed expectations for phase three results on its bloodstream infections treatment for early 2021 and that’s important because a lot of biotech companies have had to pause clinical trials because of COVID.
Management has had to pause its other phase three testing for Zoliflodacin but still expects data in the second half of next year and its progressing with phase one trials for another product.
So with biotech stocks, it’s much less about the economy and much more about their funding runway and results on clinical trials. Entasis recently signed an agreement with Innoviva that will provide funding through the first half of next year and the company has $26 million in net cash on the balance sheet. So that’s about a third of this stock’s valuation is in cash and results from the phase three trials in within the next year could really take this one higher.
Analysts have price targets for Entasis ranging from $5 to $8 per share over the next year and a successful phase three trial could easily take it to six or $7 per share for a 130% return from here.
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Next here is $1.6 billion CommScope Holding, ticker COMM, and the company is quite a bit larger than I’ll usually look at for penny stocks but I think this has some real undiscovered opportunity here.
CommScope makes copper cabling, connectors and fiber optic cabling for telecom companies and could see a wave of revenue as carriers build out their 5G networks.
The pandemic has delayed a lot of capital spending plans for telecoms but they’re going to be under the gun on infrastructure and network improvements through the rest of this year and next. That could mean a big boost to sales for CommScope and I don’t think it’s priced in the stock yet.
Case in point here and something that really struck me is the returns to cell tower stocks have done really well over the past year. That’s American Tower and SBA Communications with a seventeen and 22% return but the enthusiasm hasn’t been seen in other parts of the telecom market. CommScope has struggled and is sitting on a 46% loss over the period.
T-Mobile has outlined its network upgrade plans after the Sprint merger and AT&T said it expects to have 5G coverage by the end of this year. All the carriers are going to be upgrading infrastructure and I think a lot of that money is going to CommScope.
Earnings were $1.79 over the last year giving the shares a rock-bottom PE ratio of just 4.6-times earnings. Profits are expected lower over the next year but the company has a track record of beating expectations and I think surprise sales could drive it higher.
Analyst targets range from $10 to $17 per share over the next year and I’m looking for about a $15 per share target which would be 78% above the current price.
Elevate Credit, ticker ELVT, is another extremely small company at just $70 million market cap and shares priced under $2 each.
Elevate is an online lender to non-prime borrowers in the U.S. and U.K. which has this entire industry has really been hit over the past few months. Investors have been worried that lower-credit score borrowers would default leaving these Fintech companies unprofitable.
So with everyone trapped at home and fears of a prolonged recession, shares are down 70% from the 52-week high but all that uncertainty is now baked into the stock. 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.
We don’t have much to go on from analysts here but I think the shares could rebound to $4 each over the next year on a rebound in loan demand.
This might be the best time to buy penny stocks in more than a decade but you still need to know how to find the best investments. Look for small cap companies with the survivability to last and grow with the next bull market.