Investing in these five penny stocks under $5 will surely save you later. Get it before you miss it!
We’re up more than 30% on penny stock Surgalign Holdings in the two weeks since our stocks under one-dollar video and I’ve got five more small cap stocks to watch.
But those smallest penny stocks are always the riskiest so in this video, I wanted to highlight those with a little more financial flexibility. In fact, the five penny stocks in this video have an average market cap of $345 million, some solid financial power, and an average upside of 95% to analyst price targets!
In this video, I’ll show you how to screen for stocks under $5 a share and then how to narrow your list to buy only the best. I’ll show you a way to test out your stock ideas before committing real money and then reveal the five best stocks under $5 to watch right now.
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How to Find the Penny Stocks Under $5
First I want to walk you through a quick screener, how I started the penny stock list, and then later I’ll show you how I narrowed the list to our top five.
I like starting with the screener on Webull because I can save the criteria and it will continuously filter for stocks in the theme. Here we’ll start with the share price and since we’re targeting stocks under $5 each but above one-dollar, we’ll move the sliders here and another thing I like about the Webull screener is it automatically shows you how many stocks fit your criteria for a running list.
Next we’re going to filter by market cap, which is just the size of the company. And again, we want penny stocks so companies under a billion dollars market cap but I’d like to keep it out of the very smallest so we’ll filter for companies above $50 million as well.
Next is our two fundamental factors, the return on assets and return on equity. Both of these are great measures to make sure management is getting a positive return on the company’s assets and shareholder equity so a good start to narrowing your penny stock list.
And in that same theme, sometimes I’ll use a debt-to-assets filter as well. This idea of debt and leverage is going to be important when we go to narrow down to our stocks to buy so we’ll start here with stocks that owe less than a third in debt-to-assets.
You can also filter by analyst ratings but we’re already down to just 22 stocks so I want to start my research and later I’ll show you how I narrowed the list to the top five.
5 Penny Stocks Under $5 to Buy Now
Our first penny stock is a really interesting play, $340 million TAAT Global Alternatives, ticker TOBAF on the U.S. OTC market.
The company is capitalizing on the alternatives market and the opportunity in tobacco with a nicotine-free, tobacco-free alternative to smoking. It’s a hemp-based material engineered to mimic the smoking experience and targeting the trillion-dollar global market.
TAAT launched last December in Ohio but has quickly expanded with distribution across seven more states as well as a million-dollar distribution deal in the U.K. and Ireland.
That international deal alone doubled its last four quarters’ revenue which was up 300% in the second quarter to $691,000 CAD…and that was on its rollout to just 191 stores in Ohio. It’s now looking at the expanded distribution across the United States. It was in more than 300 stores by mid-year and is expanding to 25,000 square feet in its Las Vegas production facility.
The company has gotten strong feedback from smokers that have tried the product with up to seven-in-ten enjoying it and six-in-ten saying they’d buy it compared to regular cigarettes. There are more than 27 million smokers trying to quit in the U.S. alone. That market for tobacco alternatives is huge with just half a percent market share, converting just 200,000 smokers would be a $200 million annual revenue opportunity.
This is a highly scalable business in an industry just begging for an alternative. The company brought on two former executives of Phillip Morris this year to run operations and is growing fast, so I’ll leave a link to the investor presentation in the description below to check it out.
I’ll be putting all five of our penny stocks into my paper portfolio on Webull, a stock simulator that gives you a million dollars to test out your ideas and follow stocks before you invest real money. Besides the commission free trading and research on Webull, it’s a great way to practice your stock trades before committing your own money.
Next on our penny stock list is Alto Ingredients, ticker ALTO, at a $340 million market cap and shares just under $5 each.
Alto is a producer of specialty chemicals focusing on four end markets; health & beauty, food & beverage, essential ingredients and renewable fuels with a great turnaround story in the specialty chemicals industry.
The company is transitioning to a stronger focus in specialty alcohols which is higher margin and stable revenue. With more than 50% of its revenue from the segment, it began 2021 with 70 million gallons of alcohol production contracted at fixed prices. Now the transition means revenues were down last year, lower by about 37% to $900 million but the company was able to turn an operating profit for the first time in years.
The balance sheet here is a little shakier but improving fast. Alto has $44 million in cash against $86 million in long-term debt. It paid down $120 million in debt last year and is targeting debt free this year.
I think the renewed focus here and stronger balance sheet turns the stock around and analysts have an $11.67 price target on the shares, more than 150% higher from here.
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We’ve still got three more stocks under $5 a share to highlight but I wanted to show you three other criteria I used to narrow down our list of penny stocks for the best to buy.
First, I filtered out any biotech stocks and these are always going to be a lot of your small cap, penny stock universe. They just tend to be small, startup companies and they’ve got some great potential for returns but they’re also very difficult to analyze because you need to dig into their testing pipeline and understand how drugs are developed and trialed. So for this video, I want to keep it to penny stocks of companies in other industries.
I also narrowed our list to those with a net cash balance sheet, or more cash reserves than debt owed. There are exceptions to this but generally I like a really healthy balance sheet for my penny stocks. These companies are risky enough without piling debt leverage on top of that so I don’t want any stocks that might struggle to make debt payments.
Finally here, I looked for penny stocks trading for a low price-to-sales ratio, so cheap stocks not only on that sub-$5 share price but in the valuation as well.
Now those of you in the Nation, you’ve seen these penny stocks videos and seen me use different criteria before. The point here is there isn’t always one perfect stock screen or filters to use. For example, here we screened out biotech stocks but some of our best penny stock picks have been in the theme like Intellia Therapeutics, up 540% since November 2020.
So maybe sometimes you want to include biotechs, sometimes maybe growth stocks that are a little higher price-to-sales. Experiment with it to create your own penny stock portfolio.
Nextier Oilfield Solutions, ticker NEX, is one of the largest on the list at $716 million market cap but still a penny stock trading under $5
Nextier is a leading services company in the Northeast and Permian regions with strong exposure to shale field production. Now shale oil is more expensive to extract that traditional fields so the plunge in oil prices last year had a lot of explorers pulling back on field services.
With oil back over $60 a barrel, that production is coming back online and the U.S. Energy Information Administration sees domestic production rising steadily through 2030 as a base case and potentially jumping 40% if the price of oil stays high.
So the company’s balance sheet is still a little worse for wear with $255 million in cash against $373 million in debt but it grew revenue by 49% last quarter and should continue to recover over the next year.
On that recovery story, Nextier is the second least expensive oilfield services company among 58 in the industry and trading for just 0.8-times revenue. We’ve got 11 analyst price targets, most with buy and strong buy recommendations and an average of $5.61 per share or 66% upside from here.
From one of the largest to one of the smallest with $199 million Fluent Inc, ticker FLNT
Fluent is a digital marketing provider in the pay-for-performance model with a focus on mobile and more than 500 clients. Companies love the performance-based model of advertising because they only pay for results like when someone clicks on an ad.
Digital ad spending is another one that took a big hit last year as companies pulled back on expenses but is expected to post 16% annual growth through 2024. Even on the drop in overall ad spending though, Fluent was able to grow its revenue by 10% last year on more than 1.2 million billable actions daily, so really showing the strength of the company in marketing.
Fluent booked $303 million in revenue over the last year and $13 million in free cash flow. That means it’s trading for just 0.66-times sales and analysts have an average price target that’s nearly twice the current share price to $5 per share.
Five Star Senior Living, ticker FVE, is the smallest of our penny stocks at just $125 million market cap
The company is the fifth largest senior housing operator in the U.S. serving over 21,000 residents at 252 communities. Five star is repositioning for higher profitability. It’s average occupancy was at 70% in June which is around the average for the industry but wages as a percentage of revenue are high at 57%, this is a labor-intensive business. So the company is downsizing to exit 108 communities to focus on senior living services and out of the more intense skilled nursing for a higher margin model.
That demographic shift in the population is nowhere near over with the 65-plus population expected to grow by 30% to 73 million by 2030. The company is generating $33 million in free cash flow each year and has an amazing balance sheet. Five Star has $110 million in cash against just $40 million debt…that means it has $70 million net cash or more than half of the market cap of the stock.
There’s only one analyst rating here so I think this could go higher than that $6.50 a share target and more than a 60% upside return.