5 Penny Stocks to Keep Buying Even as Shares Fall
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Find out the penny stocks to keep buying even when they are having huge dips.
We’re up an average 60% on 39 penny stocks recommended over the last 18 months with a 460% return on Seres Therapeutics, but not all penny stock picks go your way so in this video, I want to look at five on our list below that initial price, what went wrong and why I’m still buying. We’re talking investing in penny stocks, today on Let’s Talk Money!
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Why Penny Stock Investing is Not for the Frail Heart
Nation, penny stock investing can be tough, sometimes I think it should come with a warning – do not invest in penny stocks if you have a weak heart or are at risk of heart problems.
Investing in these kinds of small, start-up type companies brings with it a lot of risk along with the potential rewards of five- and ten-times your money…and there are going to be times you’re wrong on an investment.
Willamette University did a study of over 3,000 angel investments, that same kind of small-cap start-up investing we’re talking about with penny stocks, and found that 55% of those investments returned less than the original investment, that’s the bar on the left at less than 1X return.
These are savvy, big money investors and half of their startups lost money, but they had enough of those rocket investments, enough on the right here that returned 10, 20, and even 30 or more times their money that the portfolios made a 2.6-times return over any three year period.
So when I started tracking the penny stock recommendations on the channel, I fully expected to see those big wins offset by stocks falling into the red. Stocks like Elevate Credit, ticker ELVT, that was down as much as 76% from our December video before recovering but is still down 22% over the last year.
Strong Strategy for Penny Stock Investing
This is why you have GOT to have a strategy for investing in penny stocks, you need the conviction of your research to stick with stocks you know can do well and you need to build a portfolio of at least 10 to 15 names.
In this video, I’ll show you the process for finding penny stocks I use, how to narrow your list, then reveal the five stocks under my initial recommendation that I’m still buying.
For starting your search, you can use a simple stock screener on market cap and share price. I’ll usually use the screener on Webull here but you can use any platform. I like to search for companies under $500 million market cap to find the really small stocks with that growth potential. If you want, you can narrow it by share price for stocks under one- or five-dollars.
A lot of that initial screening you do is just going to be to narrow your list to less than a few dozen to research. There are more than 6,900 companies under a billion-dollar market cap trading on the U.S. exchanges and more than four thousand with a share price under $5 each so anything you can do to narrow the list will save a LOT of time.
But it’s the research to find the best opportunities that is going to drive your returns so I want to highlight a few things to watch for and then we’ll get to the list of penny stocks I’m still watching.
First is you want to look for companies with a disruptive advantage, some competitive advantage they can use to take market share from competitors. These companies aren’t coming into virgin markets. Their products will have to compete with established brands so there needs to be a reason for customers to switch.
Next, I look for an addressable market in the billions. This is an estimate of the annual sales for the company’s product either on a global basis or just in its specific sales area and you can usually find this in a company’s investor presentation or annual statement. And the reason you want to see that total annual sales in the billions is because you want to know that even if that penny stock company can only get one- or two-percent of the market sales, that’s going to be enough to multiply current sales and 10X the stock price.
And finally here, I just take a look at the balance sheet to make sure the company has enough cash and funding available for at least the next year’s plans and not so much debt that is going to reduce its financial flexibility.
We’ll get to those five penny stocks to double-down next but just to review the penny stock list here, we’ve been tracking 39 of those small cap companies since December 2019. We’ve got an average of 60% so far with ten of the stocks more than doubling in price and Seres Therapeutics posting almost a 500% return. In fact, most of the negative returns are on the recent recommendations that have just gotten caught in the selloff of the high-growth theme over the last couple of months.
5 Penny Stocks You Can Buy at a Discount
Our first penny stock from the list, NEXE Innovations, ticker NEXNF in the U.S. market and NEXE in Canada, has come down the most since our February 3rd video but could also have the most upside.
The company is $135 million newly commercialized maker of biodegradable coffee pods and while coffee pods might not sound like a growth market, coffee consumption is $102 billion and the single-use capsule industry is a 50-plus billion units annual market expected to reach nearly $30 billion in sales by 2025.
Shares of NEXE were up 74% shortly after our video but got caught in that February growth stocks selloff but it has nothing to do with the company and the growth is still there.
The company launched its first product under the Xoma Superfoods line in February, the first in its series to launch this year and next. Xoma Superfoods is the company’s in-house brand to launch products online and through a direct-to-consumer subscription service.
Another catalyst for the shares, the company is using the same biodegradable technology from its pods to create a compostable, disposable face mask that opens up the $70 billion market for masks, effectively tripling its addressable market from the pods.
Besides those catalysts, I really like this for the trend to ESG investing, which according to Deloitte Insights, assets into stocks and investments in the theme could grow three-times as fast as non-ESG assets and make up half the managed assets in the U.S. by 2025. That’s more than $34 trillion in managed assets flowing into ESG investments and related stocks.
The market is there. The U.S. at-home market for coffee pods is $15.6 billion and growing 5% a year and NEXE Innovations is adding that ESG component to disrupt the industry. Traditional coffee pods take up to 500 years to decompose and even the soft bottom pods can take two years and cause plant toxicity. Nexe pods are designed to completely decompose in 35 days with no toxicity.
The company recently announced its completed financing through an $8.5 warrant program and $14.2 million financing last December. NEXE is now fully funded on its projected capital costs for the next 12 months to scale manufacturing. The company had its IPO in January so there’s not a lot of financial data yet but with that funding and production in place to reach 220 million pods by the end of the year, it’s definitely one to check out so I’ll leave a link to the investor presentation in the video description below.
Shares of Inseego, ticker INSG, are only down about half a percent since my November recommendation which isn’t bad but far underperforming the overall penny stock portfolio.
The company is a leader in device-to-cloud networking hardware and software to enable broader 5G coverage, faster data speeds and lower latency…which over the next three to five years, as 5G adoption improves and the Internet of Things revolution builds, I don’t know if there’s a better industry to be in.
The company is estimating a $42 billion services and enterprise market and for a company booking just $313 million in annual sales right now, even a fraction of that would make this a 10X stock return!
Shares were up as much as 135% over the two months into January before that tech stock selloff so I think the market sees the potential here even if we have to wait longer.
Shares are back to just three-times on a price-to-sales basis so not expensive for a faster growing penny stock and the balance sheet is solid with $40 million in cash against no debt.
We could be looking at catalysts for revenue growth in a global expansion campaign. The company is investing right now in growing its international sales and marketing as well as a newly launched 2nd generation of 5G products.
Elevate Credit, ticker ELVT, is another stock we had gains on before the March selloff, now down about 20% from the December 2019 recommendation.
Elevate provides online credit through instalment loans, lines of credit and a credit card available in 35 states and has a strong position in the fintech space as banking and credit evolves online.
The biggest factor in the stock’s weakness, really the business, has been the fall in demand for loans over the past year. Google Trends here shows the search demand for installment loans and this is a five-year chart. With all the money being sent out through government stimulus and lockdown consumers not having anything to buy anyway, people really haven’t needed loans like they have in the past. You see the search demand touched that five-year low in April of last year and again in March of this year.
But knowing consumers, a lot of that excess household savings we’ve been talking about, that’s going to be spent this year and people will be back to their old habits by Christmas with Elevate expecting loan originations up this year by ten- to fifteen-percent.
Besides that strong position in fintech, one of the big reasons I like Elevate is it’s one of the very few penny stocks already profitable. The company booked $55 million net income last year and is trading at just 0.23-times on a price-to-sales basis. Better still is it was able to improve the net margin last year to 11.8% from just 4% in 2019, that income profitability, and now it’s ready to apply the higher profit margin to higher revenue this year.
The balance sheet is a little weaker here with $200 million in cash against $450 million in debt but it’s a cash flowing company so I’m not as concerned here like I would be with a typical cash burn penny stock company.
Remark Holdings, ticker MARK, is a $204 million leader in AI solutions for business applications and that artificial intelligence theme is one of the biggest in the Ark Big Ideas report. Ark estimates the market cap of AI companies could grow to $30 trillion over the next 16 years at a 17% annual growth and contribute more than internet and IT companies combined.
The company makes AI software and solutions in retail, smart city and workplace safety with some real cutting edge ideas. For example in retail, the software produces real-time customer analytics that can actually analyze a customer’s path through a store, combine it with prior data, and use that to guide marketing in-store.
The company won a master contract to transform all 18,000 China Mobile stores into smart stores and its biosafety solution is being used in pandemic response with thermal imaging that can monitor the health of students in real-time.
The company could see huge growth in any of these segments but over the next few years, that push for smart cities could really drive it, being able to analyze road traffic, crime and urban planning. Shares are down about 14% since the recommendation last month and still trading at 20-times sales so still a little pricey but a good industry to be in for growth.
NexTech AR Solutions, ticker NEXCF, is also down about 17% from our March video but a strong play in the AR/VR theme.
NexTech is positioning itself as a first-mover in AR applications and in some key markets like virtual conferences, eCommerce and advertising. Grandview Research estimates the market for virtual conferences alone could reach $400 billion by 2027 and NextTech offers an advanced augmented reality experience with a built-in translation AI for 64 languages.
The company also has an eCommerce AR platform for an end-to-end solution for online shopping and an ad platform to create 3D assets into AR ads.
NexTech booked 235% revenue growth last year to $20 million and is guiding to more than double that to $50 million this year on the launch of its 3D ad network. Which, even on trailing sales, the shares are priced at 10-times revenue but hit that sales target and its 4-times forward sales…unheard of in these big theme types of growth stocks.
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