COVID-19. Debt bombs. Defaults. A "hollow" economy. I address all these topics on the Peter Leeds YouTube channel, and if you've been following along with me there, you'll already know what I think about their combined effect: the markets are on the way down, and nothing at this point can stop them from going off the rails.
So what can you do? Frankly, I think most investors would be better off staying on the sidelines than pouring their money into just about any stock right now. But for those readers who are willing to accept the risk, I'm still liking the junior gold and silver miners. Below, I talk about a few of these and mention some other stocks that have caught my eye or fallen out of favor with me.
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 ...
B.O.S. Better Online Solutions Ltd. (BOSC)
B.O.S. Better Online Solutions Ltd. (BOSC) was up 8% over October, contrary to my expectation that it had reached its top in September. Still, I'm standing firm in my conviction that this Israeli tech company's best days are behind it, at least for a while.
Why? Well, for one, the last set of results was pretty weak; and second, trading volume is incredibly low (with relative volume at only 0.12 as of the time this article was being written), suggesting that B.O.S. Better Online Solutions needs some major positive news flow in order to maintain its upward momentum. I would be very cautious with this one.
Lantronix, Inc. (LTRX)
Lantronix, Inc. (LTRX) has popped up in this Investopedia column and in my newsletter several times, and just about every time, it has witnessed considerable gains in value. These have been short-lived, however, so you may want to move extra quickly and nimbly with this stock.
I note that Lantronix actually saw a slight loss of 6% over October. Nonetheless, I still have a positive long-term outlook for the stock given the company's solid history of revenue growth and strong foothold in the Internet of Things industry.
First Majestic Silver Corp. (AG)
First Majestic Silver Corp. (AG), one of my favorite junior silver miners (and one I've mentioned numerous times in this column, from way back when it was a penny stock), managed to rise 14% in October … and I'm expecting it to keep climbing, and climbing some more, over the next few years, too.
Don't be fooled into thinking that path will be smooth, however; volatility is par for the course for the precious metals stocks. But I for one think silver prices will skyrocket in the months ahead as the economy continues to falter – and First Majestic stock should benefit.
… And Some New Ones
Image Sensing Systems, Inc. (ISNS)
Image Sensing Systems, Inc. (ISNS) has been on my radar since around 2018, when I first featured it in the pages of my newsletter. Since then, it has repeatedly turned in a great performance for subscribers who took a chance on this little Midwestern micro cap, with gains ranging from approximately 25% to 75% over the past few years.
Here's the problem: despite being a good company with some solid fundamentals and fascinating technologies, Image Sensing Systems has had a lot of trouble keeping up its momentum and, consequently, remaining above the $5 price level. Depending as it does on government infrastructure cash, particularly from the cash-strapped U.S. state departments, the company can't necessarily show the sort of explosive growth numbers that so many shareholders demand in a market dominated by the tech giants.
This means that trading volume for the stock is low, reflecting the market's lack of interest in Image Sensing Systems amid all the legions of flashy biotechs and "disruptive" technology stocks out there. Still, I believe that this stock may just be a gamble that will pay off over the long term.
Both the Republicans and Democrats unveiled massive infrastructure spending plans earlier this year to spur economic growth. Obviously, COVID-19 has put many of these planned developments on hold for the time being. But I believe they will inevitably begin again, no matter who finds himself in the White House. And Image Sensing Systems' services make highway/road safety more efficient and increase revenues for the government by, for example, ticketing drivers who are caught speeding by the company's radar technologies.
It's a no-brainer, in our view, and it's the future of getting anywhere by car. My confidence in the stock is also supported by an incredible balance sheet (low debt, 7x quick/current ratios), an amazing P/E ratio of 3.11, 272% EPS growth this year, and gross margin of 83%. The ROE, ROI, and ROA, all in the 30% to 40% range, are excellent, as is a PEG of 0.1x, P/C ratio of 2.75, and P/FCF ratio of 8.91.
Image Sensing Systems needs to announce some big new deals, and then investors will be reminded of its existence. Then, in my opinion, the price will jump back up to the $5-plus levels.
New Gold Inc. (NGD)
Given New Gold Inc.'s (NGD) 150% outperformance year to date, you'd be forgiven for thinking that the stock had already reached the extent of its upside potential. But I believe that New Gold has much further to go over the next couple of years or so.
This intermediate Canadian gold miner with properties in Ontario, British Columbia, and Mexico is looking to me like a great buy, even at its (relatively) elevated price right now. Its mines are in politically "safe" areas. It has a forward P/E ratio of 11.46, suggesting excellent value in terms of its prospective growth. The quick and current ratios are strong at 4.40 and 5.10, respectively. EPS this year climbed 93%, and earnings are set to grow another 60% next year. And the gross margin is 70%. Perhaps needless to say, acquisition potential is high here.
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 puts up a steep learning curve
IBKR Pro customers are 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
Customization and personalization options on StreetSmart Edge are terrific
The sheer number of features and reports available can feel overwhelming
Schwab maintains transaction history for just 24 months online
Schwab does not sweep uninvested cash 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.