Penny Stocks to Watch for December 2018

Out of the frying pan and into the fire. Having survived the broad market meltdown last month, we've moved forward to see most indexes, plus many of the individual stocks that are their components, looking like a duck and quacking like a duck. But it's not a duck so much as a bear – a bear market that is!

Of course, every year end has the potential to place added selling pressure on most thinly traded stocks due to tax-loss selling. This annual activity typically lightens up as we roll through December and completely ends by the time January 1 arrives. As with any artificial, negative influence on share prices, when it fades away, the underlying stocks may begin to trade more positively.

As the markets shift, we are seeing many of the high-fliers from months gone by taking the biggest hits. This complete and eventual reversal in the psychology of investors is manifesting in two ways: fear is replacing greed in terms of trading decisions; and speculation (the driving force of most stocks over the recent year) is in decline.

The final result may be tough markets as we approach New Year's Eve. Plus, with the specter of an approaching recession, the investment decisions you make might have a bias toward recession-proof businesses such as health care, dollar stores and McDonald's Corporation (MCD) over those that are more vulnerable such as luxury brands, high-end restaurants and retail.

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After my statement last month that "Investors have gotten this one wrong," Turquoise Hill helped vindicate the call with a 27% rise within days of publication. Despite giving back slightly, the trend is now a positive one.

All of this strength occurred despite "cold fish" precious metals prices. If gold, copper and silver would rise to much more appropriate and realistic levels (in my mind), then we'd really be seeing Turquoise Hill stock climbing strongly to take out this month's $2.06 peak. Easily. Turquoise Hill has $16 billion in assets, covering $6 billion in liabilities.

Look for these shares to be on the front lines among the productive miners as the single most-unloved industry returns to reality. I believe that there is much more upside ahead for Turquoise Hill compared with limited downside.

Within seven days of last month's publication, AEHR had a nice run from $1.81 to an intraday high of $2.13. However, I don't see this one being "done" with its upside, especially after the stock has given back slightly, reaching toward $1.95.

From a fundamental perspective, AEHR has plenty of strengths it can boast: 71 cents per share in cash; very strong institutional ownership levels of 40%; years of growth in sales (to $29.6 million most recently) and net earnings.

October may have even established a very strong double bottom at $1.80, and recent activity on the Japanese candlestick chart has demonstrated a few bullish indicators, with a dragonfly doji as just one example.

We aren't done with this one yet! Since trading as low as $3.10 on the day prior to our published opinion, Luna Innovations stock made short work of any resistance by rising as high as $3.78. So, was that the short-term top in prices? I don't think so.

I believe it is quite the opposite, actually. The combination of the gap higher, coupled with encouraging trading volume (275,000 shares exchanged on the gap day), has now set Luna Innovations shares up to treat the $3.40 level as a support range.

We may be very unlikely to see shares of Luna Innovations trade beneath that level ($3.40) any time soon. However, the upside prospects may welcome the shares at levels much closer to $4.00.

"Unloved" will become one of the most profitable concepts in stocks as we roll through year end. The single-most unloved industry right now involves all things to do with precious metals, which invariably affects the miners to an even greater extent than the actual commodities themselves.

I expect a significant rise in precious metals prices from among a myriad of potential price drivers: Ukraine/Russian military engagements; a softening U.S. dollar (USD); stock market volatility; recession; macroeconomic concerns and inflation.

In addition, the total worldwide supply of gold production was about 3,312 tonnes (World Gold Council – 2017), but the demand/consumption over that same period was 3,776 tonnes (World Gold Council), NOT including the 375 net tonnes that were purchased by central banks (over and above all sales).

In other words, we are well beyond peak gold and right now are in a constant state of producing less gold than we consume – every quarter, every year. Ask a fifth-grader what happens to prices of gold next.

Based on our analysis, Forward Industries stock is much closer to a bottom than a top. There is value here, and there will be a floor in prices. While the shares have slid over the past year (from $4.45 down to $1.32), the company's operating numbers have all improved.

Quarterly revenue has increased to $9.5 million from $7.3 million. Annual sales rose to $24.9 million from $18.5 million. Fiscal year earnings per share hit $0.13, an improvement from the previous year's $0.05 earnings mark. Total net earnings achieved a mark of $1.2 million (rising from $466,000 in the prior year).

Forward Industries has $4.3 million in cash (and equivalents), with more coming in every quarter. The business operations are growing from just about every metric, and when a business does well, the share price typically (eventually) follows suit.

Here is a cutting-edge biotech company that develops diagnostic and research solutions for the medical industry. With 460 employees and $60 million in cash ($1.27 in cash for every outstanding share), Enzo Biochem is quickly getting comfortable in its industry.

Enzo achieved $104.7 million in revenue in fiscal 2018, and besides research and development, those funds also kept the company's debt load manageable (only $549,000 total) and left it with a tremendously strong current ratio of 4.12.

I typically do not like biotech because the general business model involves losing money by the millions on R&D while companies try to monetize their technologies or establish proof-of-concept. However, once in a while, I'll cross paths with a compelling stock in the sector, and that applies to Enzo.

Institutional and professional ownership of Enzo Biochem shares sits at a strong 71%, while insiders hold another 7.4%. This "vote of confidence" demonstrates that many players who are watching this one are confident about the upcoming prospects of the corporation.

They say, "don't try to catch a falling knife." Well, some risk-tolerant investors may want to try to catch this one.

Coffee Holding stock is in a downtrend and in fact just broke below what looked like a potential support level at the $4.00 price point. That may end up being a negative sign for near-term share prices, but with strong operational results plus a solid financial position, shares of Coffee Holding are at what look like very compelling levels.

Fiscal 2017 revenue topped $77 million, which trickled down to net earnings of $467,262 (16.8% gross profit margin). Top-line sales have increased in each of the past five quarters, leading up to $23.4 million in sales for the most recently reported three-month period.

With more than $38 million in assets against only $12 million in liabilities, Coffee Holding is sitting pretty. This will be a somewhat slow mover, but time will likely turn it into a consistent, reliable and expanding investment, which just so happens to be somewhat recession proof... making Coffee Holding especially attractive as we roll into 2019.

Boring. Safe. And with a solid lock on its space. Headquartered in Anchorage, Alaska, this company offers telecommunication solutions: broadband network hosting; domestic and long-distance telephone services; cloud-based solutions; network build-outs and wireless.

You won't get rich on this one, but you will benefit from some of the company's operational successes. Alaska Communications Systems achieved $226.9 million in fiscal year revenue, which trickled down $86 million in gross profit. 

Although the year still ended with a $ 6.1 million net loss, the company has stabilized since then, pulling a net profit of $1.8 million last quarter (Q3). The bottom-line results (earnings) also showed a net gain of $3.4 million in Q2, proceeded by $2.1 million in Q1.

With a solid track record of operations since establishment in 1998, Alaska Communications Systems has now built a solid and entrenched recession-insulated business with 589 employees. Its prospective customers are a captive market, greatly refining the business' marketing focus and targets as well as the result-feedback from various sales efforts.

Information Services Group is an advisory/consultant for all things digital: the Internet of things; 3D printing; autonomous vehicles; surgical training and medical operations; traffic control; digital efficiencies; artificial intelligence; and real-time retail inventory sales tracking. The company is very much a pioneer in just about every space it gets involved with. Each unique solution it provides is not only occurring in a growing industry, but in many cases, Information Services Group is creating the industry itself!

It's going to take a lot of money to build this business. A lot. Luckily, customers are willing to pay for Information Services Group's help, and they did just that to the tune of $269.6 million in revenue for fiscal 2017. That represents solid growth from the $216 million mark in 2016 and $209 million in 2015.

Despite losing $2.6 million over the annual period, Information Services Group has recovered well and even harvested $4 million in net earnings over the most recent quarterly period. The company captured $2.4 million in the quarter prior to that.

With only $136 million in liabilities compared with its impressive asset position of $212 million, traders should look for shares of Information Services Group to climb. In fact, $4.10 is very likely a support range (and price bottom) in my opinion, which represents very minimal downside for anyone with a stop loss to sell if shares dip toward $3.99.

As the nightmare of October fades into memory and the artificial influence of tax-loss selling abates as we near year's end, some compelling opportunities may be emerging among the smallest shares around us. I suggest that you use (and learn about) stop losses, do way too much due diligence and call the company's investor relations contact to get the views of any company you are interested in "from the horse’s mouth."

This month will almost certainly be more successful (from an investment perspective) than October. For those of us who position well and properly, the current market, the coming year and even just the next few months are setting up to be quite compelling.

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 – PeterLeedsPennyStock. 

<Important Disclaimer: 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. The author did not hold a position in any of the stocks mentioned at the time of publication.>