As I discussed recently on the Peter Leeds YouTube channel, I believe that 2020 will be the year that debt starts to matter again. In other words, as debt levels continue to surge and interest rates become too high to cover, we'll see a wave of bankruptcies occurring not only among consumers but on the corporate and municipal levels too.
This will in turn set off a global chain reaction culminating in a worldwide recession, in my view. Read: far higher unemployment rates, a huge market sell-off, and massive economic changes ahead – and no amount of money dumping by the Fed or delusional thinking among investors can sweep this mess under the rug.
My team and I are constantly on the look-out for penny stocks that can withstand the roller coaster ride that lies ahead. While they may take some time to get going, the following stocks are ones that I believe have substantial long-term potential and are, for whatever reason, being overlooked by most investors.
Due to the time constraints inherent to technical analysis, some of the patterns, signals, and set-ups I describe below may no longer be relevant or intact as of the time you read this article. Please ensure you conduct your due diligence when looking at the trading charts and data for the following stocks.
Many of the stocks mentioned here were also profiled, traded, or otherwise discussed in the Peter Leeds Newsletter. Peter may furthermore own shares in some of the investments mentioned, in which case that fact will be clearly indicated. (See below for an additional disclaimer regarding penny stocks.)
Barnes & Noble Education, Inc. (BNED)
My team and I included educational book retailer Barnes & Noble Education, Inc. (BNED) in our Penny Stocks to Watch list for August 2019. Since then, it has been a somewhat unlikely winner for us, leaving penny stock territory behind when it moved all the way up to just over the $5 levels in November and gaining an overall 30% over the past quarter.
It just goes to show you that even the least "buzzy" equities (in this case, in the bookstore/print sector) can still be the most profitable, while a hyped-up pot or cryptocurrency stock can bring you to the brink of bankruptcy.
Barnes & Noble Education stock has given back some of its gains since November and is now trading at $4.08. Its 0.30 quick ratio gives me pause, quite frankly, since it indicates that the company is barely able to meet its financial commitments.
That said, the news on Dec. 4, 2019, that Barnes & Noble Education is reviewing its "strategic options" means that the stock could skyrocket again if any positive merger/acquisition news comes out. In the meantime, I'll be keeping a close eye on this one.
Rekor Systems, Inc. (REKR)
Rekor Systems, Inc. (REKR) has been a frequent topic of conversation around the Peter Leeds offices and in this column, having climbed an astonishing 688% earlier in 2019 from when I selected it for our newsletter's Hot List – and then losing a substantial part of that increase.
Now, with a 31% rise over the past month, it looks like Rekor Systems share prices are heading north again. That's very good news for investors who have stuck by the company through all its roller coaster moves.
What's next? I have no idea. And don't believe anyone who tells you otherwise; this is one stock that has kept everyone guessing. For my part, I suspect that the uptrend will continue over 2020, but not without some more explosive climbs and falls in Rekor Systems' value that will shake out any more hesitant investors.
Polar Power, Inc. (POLA)
Polar Power, Inc. (POLA) is a pretty new arrival to this column. I first featured it in this column at the beginning of last month, and since then, it hasn't really had a chance to meet its full potential. Case in point: as of the time I was writing this update, prices had climbed only around 7%.
Polar Power may not be for impatient investors, in my opinion. But there are quite a few things to like about the stock, including its solid balance sheet, 0.77 price/sales ratio, and 106% EPS growth since the past quarter.
Over 2020, I think we could see Polar Power stock climbing back closer to the $5 levels at which it has historically traded. The group's next set of results should provide some indication of this progress. If the company's earnings don't see any improvement, however, I might consider exiting the trade.
New Penny Stocks to Watch
Penny stocks are notoriously volatile.
B.O.S. Better Online Solutions Ltd. (BOSC)
My team and I featured B.O.S. Better Online Solutions Ltd. (BOSC) as a Hot List pick in one of our December newsletters, which was available only to our subscribers. Very shortly afterward, the stock shot up to $2.25 in a short-lived rally before dropping back down to $1.97 currently.
I believe that this Israeli communications technology firm is due for another precipitous rise over the next few months. The recent news on Boxing Day that one of B.O.S. Better Online Solutions' co-CEOs is stepping down has been taken well by the market, with a 7% climb in value over the past week.
I'm also hopeful that this management change will call attention to the stock and drive up not only prices but trading volume. Let's hope to see more announcements of new orders and partnerships over 2020, which may get B.O.S. Better Online Solutions shares trading around the $2.60 levels if all goes well.
GenMark Diagnostics, Inc. (GNMK)
I've said it before, and I'll say it again: in my decades of experience studying the penny stocks, I've come to learn that savvy investors should largely steer clear of the biotech stocks. Unless they like crazy-high levels of risk, that is.
However, my attention was captured by GenMark Diagnostics low relative strength index of 25.18, which suggests that the stock is very oversold. I also like the looks of the company's 32% quarterly increase in sales and projected EPS growth next year of 26%.
This is one stock you're going to want to keep tight stop-loss levels with, however. Should GenMark shares sink much lower (say, 5% to 10% or more) than its current price of $4.82, I would cut my losses and exit the trade.
Smith Micro Software, Inc. (SMSI)
This application software company seems to me to be of considerably higher quality than 99% of the penny stocks out there. For one, the P/E and forward P/E ratios of 13.44 and 12.90 suggest that Smith Micro Software, Inc. (SMSI) is a good value and will continue to be in the future. A relative strength index of 28.51 suggests, furthermore, that the stock is oversold and due for a turnaround in fortunes.
I'm also really liking the 81% climb in revenue on a quarterly basis, as of the last reported set of results, and spectacular gross margin of 90%. That's not to mention EPS growth of 317% over the past quarter.
The company is set to release its next earnings report on Jan. 26, 2020. If management is able to keep up the positive momentum, we could see Smith Micro Software leaving the penny stock zone again in 2020.
The Bottom Line
I'm expecting big changes ahead in 2020 as the curtain rises on a delusional stock market and its problems – including the mania that has been guiding it to sky-high levels – finally become impossible to ignore.
The good news is you're already preparing for the recession by reading this article. Don't underestimate the benefits that an ample amount of due diligence, combined with a judicious balance of caution and risk-taking, can have on your investment portfolio.
Yes, even when trading highly volatile penny stocks, and even when recession sets in. Keep watching this space for tips on navigating this increasingly tricky economy.
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.
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.