Last month, I talked about how to handle investment losses gracefully, reaping the hard lessons of the stock market as you re-assess your trading goals. Almost as important as coping with loss is the way you handle your successes.
If you have invested thoughtfully in a well-researched stock (or even if you've just encountered a real stroke of good luck), you may find yourself with more money than you know what to do with. This "victory lap" period can be an intensely dangerous time for investors, however. Many forget all the hard-won wisdom they've learned down the line and start throwing their money into any stock with an exciting story.
Instead of throwing caution to the wind, put even more of your time into due diligence. Trust your instincts, but stay cautious, avoid getting greedy, and keep a close eye on those fundamentals rather than the narrative a company's Investment Relations firm is selling.
Below, you'll find some updates on some intriguing and high-potential equities, as well as a few new ones I've been looking into. May they bring you even greater profits as you proceed along your investment journey.
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
BRF S.A. (BRFS)
I introduced BRF S.A. (BRFS) to readers of this column in September, and the ticker's activity since then has been nothing short of ridiculous. We're talking intense volatility here, just as I had predicted last month—but even I wasn't expecting this much of a rollercoaster.
The good news is that the bulls seems to have wrested control away from the bears, at least for now. As of the end of September, when I was writing this update, BRFS was ultimately up 8% over the past month and 12.35% over the past week—all on the back of zero news from the company itself.
I think it's likely that we'll see more volatility from this Brazilian food company, but I remain optimistic on its prospects given strong financial ratios and still-much-cheaper valuation than its peers. In particular, if it manages to climb above the $5.20 resistance level, BRFS shareholders could see some substantial gains ahead.
Sigma Labs, Inc. (SGLB)
In contrast to BRFS, Sigma Labs, Inc. (SGLB) had a hard September, heading up to $4 by the middle of the month but then careening downward again. This resulted in an overall 7.5% drop from the time I featured the stock in this column until the last few days of the month.
Basically, investors were mildly enthused by a contract win. However, the excitement wore off, and now Sigma Labs stock is stuck at around $3.15 levels.
Despite my disappointment that its initial climb wasn't more sustainable, I believe that it's too early to give up on SGLB. The earnings per share (EPS) figures are simply too excellent to ignore (65% growth this year, 35% growth projected for next year), and the balance sheet is rock-solid.
In addition, with 80% of manufacturers purportedly looking to increase their use of 3D printing technologies, Sigma Labs could be a major winner over the next year.
Entravision Communications Corporation (EVC)
Since I included Entravision Communications Corporation (EVC) in the June 2021 edition of my "Penny Stocks to Watch" column, it's had a fantastic run from around $4.73/share to a peak of $8.11 at the beginning of September. (That's an approximately 70% theoretical profit for readers.) Even at its current price of $7.11, shareholders are looking pretty smart right now.
In my opinion, Entravision's penny stock days are likely behind it, barring some catastrophic event. Its moving averages are pointing to a "Strong Buy" signal, and its relative strenth index (RSI) has returned to normal (i.e., not overbought) levels.
One potential issue is that EVC is doing SO well—as with, for example, its consolidated adjusted EBITDA ascending 932% over the prior-year period, as of the second quarter of 2021—that it will be difficult for the stock to continue hitting this momentum.
The kind of triple-digit revenue and EPS that Entravision is seeing could turn into what Wall Street analysts call "tough comps," meaning the stock may struggle to return to its previous highs and skittish investors could consequently abandon it if/when its results grow less exciting.
While I believe it's highly possible that EVC will continue to climb by at least 20% more over the next few months or so on the back of its global expansion plans, it looks for now as if it may be taking a breather. Lower entry points may be ahead, so watch this one closely.
Some New Ones
PaySign, Inc. (PAYS)
PaySign, Inc. (PAYS) is undoubtedly one of the strangest penny stocks I've come across in my many years combing through these low-priced equities. It quite literally deals in "blood money," providing prepaid gift cards to American plasma donation centers, which subsequently use them as incentives to bring in potential donors.
The blood garnered from American donation centers is often sold to pharmaceutical companies and then used in medical treatments for hemophilia and autoimmune disorders, as well as for chemotherapy. Two-thirds of the global blood supply comes from the United States, and sales of blood plasma products come to around $25 billion per year.
In 2020, plasma donations in the U.S. dropped around 20%, and PaySign's revenue suffered given that it makes money from the fees on its prepaid cards. As of the end of 2020, the group's sales had plummeted around 30% on an annual basis. Meanwhile, the world is facing a shortage of many important plasma-based medications, without which people will most certainly die.
Even though the delta variant is still a major concern, there are many signs that PaySign's plasma business will recover in 2021 and 2022. (In fact, the company says that donations are already recovering significantly on a month-to-month basis.) The government stimulus will end or has already ended in most states; childcare has opened back up; and people who are afraid of contacting COVID are likely already double-vaccinated.
The company is therefore expecting a large resurgence of business in the third quarter of 2021 and beyond, to the tune of "a range of $29 million to $32 million, reflecting growth of 20% to 32%, and adjusted EBITDA of $350,000 to $1.9 million," per management's comments in the second quarter 2021 earnings call.
This represents tremendous upside potential for PaySign, in my opinion, and combined with a strong balance sheet and price-to-free cash flow (P/FCF) ratio of 5.04, I believe that the company is almost certainly undervalued.
Alto Ingredients, Inc. (ALTO)
Alto Ingredients, Inc. (ALTO) is a penny stock right now, but I don't expect it to stay that way for very long. Not with projected EPS growth next year at 71.54% and a forward price-to-earnings (P/E) ratio of 5.32, both of which suggest that 2022 will be an excellent year for ALTO shareholders. And not with—in my opinion—a recession-proof suite of products involving "specialty alcohols," which are used in such diverse (and in some cases essential) goods as cosmetics, cleaning products, pharmaceuticals, animal feed, pet food, and biodiesel feedstock.
Like many of its low-priced peers, ALTO is a turnaround story. Despite its large roster of blue-chip clients—with household names like Chevron, Cargill, and Procter & Gamble among them—its five-year revenue history is dispiriting.
More recently, however, the company has been pivoting from an ethanol manufacturer to a specialty alcohols producer. Its sales have subsequently shot up over the past two quarters, climbing approximately 30% and 35%, respectively.
Unfortunately, Alto Ingredients' cost of goods sold (COGS) has also increased over those periods by roughly the same percentages. I believe that this is a necessary stage in ALTO's journey toward sustainable growth, however, as the group undertakes to transition its facilities toward producing specialty alcohols.
The full fruit of its turnaround may take a few more months to appear. But once potential shareholders get a load of all of ALTO's abundant potential, I think its prices may skyrocket—and relatively soon, at that.
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.