Are you feeling confused about the general state of the global economy these days? Don't worry; you're not alone. Even the professionals at the major financial media outlets and investment banks seem deeply divided on which way the world's going, with some calling for a severe market correction or worse and still others forecasting a continuation of the bull run characterizing the American markets' performance over the past decade.
As I talk about on the Peter Leeds YouTube channel, I'm convinced that recession is already here. Not just in North America either. In Germany, the largest economy in Europe, the manufacturing Purchasing Managers' Index (PMI) dropped all the way to a miserable level of 41.4 in September from 43.5 in August. At this rate, the Eurozone should find itself in the midst of a recession any day now.
Even amid all this confusion and market turmoil, however, my team and I believe that there are plenty of great opportunities out there for diligent investors. For some cautious investors, recession will mean playing it safe by lavishing money on stakes in the blue-chip companies. But we would argue that massive potential upside can also be found in some of the unlikeliest contenders.
Yes, that means the lowly and much-maligned penny stocks, including some of the undervalued and overlooked low-priced equities you'll read about below. Patience, due diligence, and a high tolerance for risk, balanced with a cautious and judicious usage of stop-loss levels – all will be your most valuable tools as you embark on your investing journey. And while penny stocks will likely test your investing skills, they may equally bring great rewards in these trying times.
Penny Stocks to Keep Watching
Many of the stocks mentioned below were also profiled, traded, or otherwise discussed in the Peter Leeds Newsletter. As well, Peter may 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.)
Perceptron, Inc. (PRCP)
Overall, 3D metrology solutions provider Perceptron, Inc. (PRCP) has been a nice performer for subscribers of my Peter Leeds newsletter, netting a 45% gain at its peak since I first profiled it as one of my Hot List picks.
As of the third week of September, Perceptron stock was continuing its merry way upward, climbing all the way to $5.40 soon after its earnings came out. While the stock currently seems to be taking a breather (with prices dropping to around $4.80 since Sept. 20), I'm pretty confident that Perceptron will resume its positive momentum again shortly.
It isn't rocket science. After all, with 3,400% growth in earnings per share (EPS) expected for the company next year, it's looking as if the market is finally going to have to stand up and pay attention to Perceptron, in my opinion.
Blink Charging Co. (BLNK)
Blink Charging Co. (BLNK) was one of our Penny Stocks to Watch from June, and shares of the electronic vehicle charging company have seen a triumphant climb of approximately 65% year to date.
Despite a multitude of positive news releases about Blink Charging's expanding footprint in Israel and Greece, however, growth has been slightly more muted lately, with share prices up only around 6% over the past month and approximately 10% over the past quarter.
Nevertheless, I'm still really liking Blink Charging as a long-term hold – and I think investors with patience to spare may find the company to be an intriguing proposition.
Lightbridge Corporation (LTBR)
As of the time I was writing this report, nuclear fuel technology company Lightbridge Corporation (LTBR), one of my Penny Stocks to Watch from September, was up around 14% over the month. That's not quite the sizeable gain I envisioned – but it's a start, and I typically like to wait at least six months to see how a stock's performance plays out.
Interestingly, in the third week of September, Lightbridge announced in a press release (alongside its joint venture partner Enfission, LLC) the "successful demonstration of the manufacturing process and fabrication of Lightbridge Fuel™ surrogate rods in a length that could be usable in NuScale Power's small modular reactors (SMR). The demonstration included the production of several coextruded rods using an internally developed and patented coextrusion process. The fuel rod design is expected to increase core performance, extend core life, lessen the number of refueling outages, and offer reduced levelized cost of electricity."
This is exciting news, indeed, and I'm hoping that it will bring Lightbridge stock closer to the $1 level over the next few weeks.
HyreCar Inc. (HYRE)
Imagine if you were one of the investors to buy HyreCar Inc. (HYRE) at $8 back in the spring of this year, not too long before prices sank all the way down to around $2.65 as of the time I was composing this report. In the past month alone, the stock has dropped around 20%, begging the all-important question: is it time to bid HyreCar stock adieu?
I continue to be a fan of the central concept behind HyreCar: namely, it rents out cars that are not currently being used to people who want to drive for Lyft, Inc. (LYFT) or Uber Technologies, Inc. (UBER). With a global recession on the way and the gig economy becoming an increasingly common way to earn some spare cash, my team and I think the idea is nothing short of genius.
So far, the market hasn't agreed too much with me (although I note that investment analysts have given HyreCar a target price of $8.81, suggesting potential upside here of approximately 230%. I wouldn't be surprised, however, if HyreCar stock prices continued to drop over the month of October. In my opinion, the company needs to get the word out about HyreCar's services and release some news that will capture the market's attention for once and for all.
Luckily, with a zero debt-to-equity ratio and decent quick and current ratios at 2.50, HyreCar appears to have some time to figure things out. If its leadership is able to get more visibility, then I think shareholders could look very smart six months to a year from now.
Some New Ones to Keep Your Eyes On
Penny stocks are notoriously volatile.
Fluent, Inc. (FLNT)
Some of the greatest opportunities for penny stock investors can be found, in my view, in what's colloquially known as a "falling knife" scenario – or a situation in which a stock's price drops rapidly and substantially. The prevailing wisdom on Wall Street has long been that investors shouldn't try to "catch" a falling knife. Because, just as if you attempted to catch a knife hurtling down at you from the sky in real life, you might end up grabbing onto the wrong side. And then you wouldn't be a very happy camper.
So, in other words, an investor who snaps up a sharply falling stock could find himself or herself badly hurt if prices continue to fall. But on some very happy occasions, a "falling knife" will eventually turn into what is termed a "whipsaw," a significant rebound in price.
We believe that digital marketing firm Fluent, Inc. (FLNT) may soon enough fall into this category. In its company profile, Fluent describes itself as "creat[ing] marketing programs that deliver better digital advertising experiences for consumers and measurable results for advertisers." The company uses proprietary artificial intelligence and machine learning algorithms to do so. Recently, Fluent's price went spiraling downward approximately 40% in only a few days.
The likely culprit was management's comments on the most recent conference call, which lowered guidance for the year ahead to "only" 11% to 14% revenue growth compared with 2018, or $277 million to $285 million – a decrease of around $8 million from management's previous guidance.
Some context here: Fluent has a solid balance sheet, with 2.20 quick/current ratios and pretty minimal debt. Fluent's sales over the past five years have risen on average 144%. Revenue was up 24% last quarter. EPS next year is expected to climb a staggering 206%. The forward P/E ratio is 11.96. PEG is 0.75.
These awesome numbers paint a portrait of a company that has been unfairly punished by the market's hissy fit, in my opinion, especially considering that the company has 190 million opted-in consumer profiles – a goldmine of consumer data. No surprise, then, that management mentioned that they count a number of "marquee" Fortune 500 companies among their clients.
I believe that management's cautious and sensible guidance revision on the most recent conference call has been deeply misinterpreted by investors and that Fluent stock is absurdly oversold.
Lithium Americas Corp. (LAC)
If you're a believer in the electrification of just about every transport vehicle out there – or, in other words, a super-fan of Tesla, Inc. (TSLA) or Elon Musk – then you'll want to look into Lithium Americas Corp. (LAC).
Lithium Americas is a Canadian lithium miner with properties in Argentina and Nevada. Because neither of these mines are functioning yet, you can bet that the firm is still a highly risky bet – but it's also one with truly tremendous upside potential and still relatively cheaply priced at $3.19, in my view, as of the time I was writing this report.
In my opinion, the eventual electrification of most transport vehicles is a no-brainer. The real question is when the revolution will take place. For now, there's no traded price for lithium. But with demand for electric vehicles growing, I believe that Lithium Americas will benefit strongly from the shift to electrification in the transport industry.
Quarterly sales were already up 74% as of the most recent earnings results. This figure could increase to the triple digits in the medium term, in my view, although investors may have to be patient in the interim.
Aegon N.V. (AEG)
Aegon N.V. (AEG) is certainly not your typical penny stock. With approximately 26,000 employees and a market capitalization of almost $9 billion, this Dutch life insurance and asset management firm is not only big, it's loaded too. It also has some beautiful financial ratios under its belt, including a P/E ratio of 10.17 and an even better forward (or future) P/E ratio of 5.24.
Meanwhile, quarterly profit was up 209% as of the last set of earnings, and EPS over the next five years are forecast to climb 38.40%. Moreover, its debt-to-equity ratio is at zero. Add to all this a $0.33 dividend and investor-friendly policies like share repurchase programs, as described in the Seeking Alpha article, and Aegon is looking like a mighty fine deal to me.
Of course, there are some catches. (Aren’t there always?) For one, Aegon's five-year sales average is posting a decline of 15%. According to management's comments on the most recent conference call, the company is working hard to reverse that dispiriting decline.
Have these plans been successful so far? CEO Alex Wynaendts seems to think so, pointing to the significant increase in capital generation since these actions were taken. Although U.S. life insurance sales (under Transamerica) are still far from great, Mr. Wynaendts claims that cash generation is increasing in the region, and China sales also seem to be on the move.
Aegon is an incredibly complex multinational organization. As such, its proverbial fingers are in many international pies, and as various financial analysts point out in the Q&A of the company's most recent conference call, the group's fortunes are heavily tied to mortgages. Not to put too fine a point on it, but this may be terrible news for Aegon – especially with a recession here or on the way and bubbly housing markets all over the globe.
Still, I think that all of these risks may be factored into Aegon's penny-stock price at the moment. I also believe that there could be substantial upside of 65% or more from here, with prices liable to return to at least the $6.50 levels if management plays its cards right.
Fuel Tech, Inc. (FTEK)
Pollution treatment firm Fuel Tech, Inc. (FTEK) has had a rough year, with share prices dropping around 30% and revenues dropping a substantial 25% over the past quarter. Look a little closer at Fuel Tech, however, and you may – like me – see a great deal of potential.
For one, the balance sheet looks quite strong: the quick and current ratios are at 3.0, and the debt/equity ratio is zero. Furthermore, EPS next year are forecast to grow around 167%. The group's relative strength index (RSI) at 36 likewise suggests this stock is significantly undervalued.
CEO Vincent J. Arnone had this to say on the conference call about FTEK’s disappointing recent performance: "As mentioned previously, domestically, we have been negatively impacted by APC project delays, cancellations and by one project loss. We have been in the APC business now for three decades, and none of the activities that we experienced in the first half of this year are unusual. They did, however, impact us at a time when we were expecting a general increase in overall business activity.
That said, gas turbine demands for SCR and ULTRA systems have steadily increased driven by permits for new units and retrofit regulatory requirements. We are actively involved with the turbine suppliers, the heat recovery steam generator manufacturers, and overall system integrators in an effort to capitalize on this market trend.
We are also seeing a consistent flow of new small-to-medium gas turbine combined cycle plant projects such as the combined heat and power upgrades in many universities and large hospital complexes."
In the call, Mr. Arnone mentions other business opportunities in the works that may lead Fuel Tech toward a turnaround. If the stock can get more trading volume and release some interesting contract news and earnings results, then we might be able to see Fuel Tech shares heading back to around the $1.25 levels over the remainder of the year.
The Bottom Line
As a reader of Investopedia, you're uniquely positioned to benefit from all the assiduous research you've already done on the stock market. You're also, consequently, likely aware that penny stocks are rife with volatility.
Sometimes, however, these low-priced, high-risk equities can allow you to discover exciting new areas of the stock markets you may not have previously considered. In times of market turmoil like the one we're currently in, a sense of adventure and openness may, ironically, help careful, thoughtful investors find shelter in the storm.
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.