Let's face it: the years 2020 and, so far, 2021 had already set the bar high for all things weird. But February 2021 was a particularly strange month for the stock market, as retail investors – spurred on by a Reddit message board – set the financial world abuzz. After they first bet on GameStop Corp. (GME), their next target was First Majestic Silver Corp. (AG), a stock I've featured many times in this column.
Of course, volatility is the name of the game for penny stocks (and erstwhile penny stocks like First Majestic). This, however, was something else entirely. I maintain nonetheless that, even with all the extraordinary political, economic, and sociological upheavals of the past few years, there is significant money to be made on a tiny minority – perhaps 5% – of penny stocks.
Interested? Read on for some updates of my previous picks, as well as some new low-priced equities my team and I have our eyes on.
Some of the set-ups I describe below may no longer be relevant or intact as of the time you read this article. Please conduct your own due diligence. Many stocks mentioned here were also discussed in the Peter Leeds Newsletter. Peter may own shares in some of the investments mentioned, in which case that fact will be clearly indicated. Please note that penny stocks are notoriously volatile.
First, Some Updates
First Majestic Silver Corp. (AG)
Since I first included First Majestic Silver Corp. in my newsletter and this monthly column, the price had tripled by the end of 2020. As I wrote at the beginning of last month, "Is it time to exit First Majestic Silver stock? Absolutely not. I expect 2021 to be an even better year for shareholders, with the company reporting increasingly promising results with each quarter and stock market volatility spurring the flight to safety stocks like precious metals."
I didn't, however, foresee the stock rising to $24 only a few days later after Redditor investors set it squarely within their sights. Now that the furor is more or less over, First Majestic stock is trading lower at $20.19.
Here's my take: First Majestic is finally being valued at the levels it deserves. And even minus another Reddit-inspired rush toward the stock, I believe that First Majestic shares could very well return to close to the $25 mark.
Gold Resource Corporation (GORO)
I'm somewhat disappointed by Gold Resource's performance so far, but I have high hopes for the junior precious metals space this year and into 2022. My call for higher commodity prices amid lower currencies stays strong, and I won't be going anywhere for some time to come.
RF Industries, Ltd. (RFIL)
The last time I talked about RF Industries, Ltd. (RFIL), back at the end of December 2020, I mentioned that shares had plummeted from $6.50 in mid-December to $4.80 just in time for the January 2021 edition of "Penny Stocks to Watch" to be published.
Back then I wrote, "I think the drop may be an overreaction to what are some actually pretty strong earnings given the challenging sales environment RF Industries is working in. Further, I like the potential implicit in the firm's product offerings, which should benefit strongly from the 5G revolution. I'll be holding onto this one."
Well, I hope you did too, because over the past couple of months, RF Industries stock clawed its way back to the $6.50 level. It has gone down to $5.91 since then, but I still think the stock is undervalued. In other words, I'll continue holding onto RF Industries for now.
And Some New Ones
Solitario Zinc Corp. (XPL)
Solitario Zinc Corp. (XPL) has one foot firmly placed in the base metals – through its zinc mining operations. Interestingly, though, it also recently expanded its purview to gold through an acquisition.
Solitario management's rationale for the acquisition goes like this (via President/CEO Chris Herald): "With the unprecedented, planned stimulus spending throughout the world due to Covid-19, we believe zinc is exceptionally well positioned for years of increased demand related to infrastructure spending. Accordingly, we anticipate our two zinc assets, being our interests in the large high-grade Florida Canyon and Lik projects, as managed by our partners, will remain our core assets. In addition, we want to take advantage of our in-house wealth of experience in the precious metal arena and believe we can add shareholder value by acquiring and advancing gold and silver assets, as we believe precious metals will benefit as a store of value as countries expand their currencies to fund the stimulus."
A good track record plus some diversification? Sounds promising to me. Add to that an incredibly strong balance sheet (with quick and current ratios both at 34.80 and negligible amounts of debt), a recent quarter-over-quarter earnings per share (EPS) increase of 96%, and my optimistic long-term view for both the base metals and precious metals, and in my view you've got yourself a winner.
VerifyMe, Inc. (VRME)
With the rise of cyberfraud and piracy over the past decade, internet security and protection services are growing increasingly important. I've consequently included quite a few of these digital security firms in my newsletter over the past few years. VerifyMe, Inc. (VRME) is a little different from those companies, however. It describes itself as "a solutions provider that helps brand owners monitor, control and protect their supply chain with software and counterfeit prevention technologies."
In short: if you need something verified for authenticity, VerifyMe is the company you're going to look to. So how's business going?
Not too bad, actually. The group's financials certainly are impressive for a penny stock. The quick and current ratios at 16.90 and 17, respectively, suggest a bullet-proof balance sheet. Debt/equity is low at only 0.01. Meanwhile, the gross margin at 83% is stellar.
The earnings figures are particularly impressive. EPS next year are set to rise almost 100%, and over the past five years, they have grown at an average of almost 60% per year. Admittedly, there is still substantial risk and potential downside here, because the company is after all a penny stock.
I note that annual revenue over the past five years has been something of a "feast or famine" situation. However, these numbers seem to have started leveling out over more recent quarters. Worse, net income over the past five years, and the past five quarters, has yet to show a profit. This is deeply worrisome. The losses aren't staggering (at least, not yet), but they certainly aren't sustainable.
Still, VerifyMe is looking to me like a company on the way up. Patient investors with an appetite for risk, this one's for you.
Best Brokers for Penny Stocks
Interactive Brokers' very low per-share trading commission of $.005 ($1 minimum per trade) and up-to-the-split-second real-time margin calculations are ideal for penny stock traders. IBKR Lite clients can trade penny stocks for $0.
Low commissions, maximum 1% of trade value for IBKR Pro, $0 for IBKR Lite
Streaming real-time data, including account information
IBot, IB’s AI-powered online assistant, can help find features
Data streams on only one device at a time
Traders Workstation a steep learning curve
IBKR Pro customers charged fees to trade, though they are low
Schwab's research pages point out the exchange on which a stock trades, which will keep you informed of the inherent risk. There are a variety of platforms available; the StreetSmart platforms have customizable charting and streaming real-time quotes. Schwab does not charge trading commissions on all stocks (including penny stocks) and ETFs.
Excellent screeners available on StreetSmart Edge
Free access to a wide array of news feeds
Strong customization and personalization options on StreetSmart Edge
The sheer number of features and reports available sometimes overwhelming
Transaction history for just 24 months online
Uninvested cash not swept into a money market fund
Penny stocks are volatile and can generate catastrophic losses. Price levels in this article are hypothetical and do not represent buy recommendations or investment advice. Keep in mind that it's your responsibility to make trading decisions through your own skilled analysis and risk management.
Peter Leeds is the author of several books, including the international bestseller, "Penny Stocks for Dummies." He and his team also issue a newsletter devoted exclusively to penny stock picks and analysis, as well as a popular YouTube channel PeterLeedsPennyStocks.