It may be interesting to note that the Dow Jones Industrial Average (DJIA) has seemed to form a double top over the year, which is a very negative indicator, having peaked first in late January before falling back. The average then made another run at breaking out, only to bounce off the same level (26,951) in early October, before falling much more than anything we have seen since the Global Financial Crisis in 2008.
I am unsure why no one else seemed to notice this, or even talk about it, but we've been pointing out the double top since it formed. This technical pattern played out exactly as most would expect, and it served as a great warning sign right as the markets suffered a significant shift in momentum and trend.
Since Sept. 1, and even more so since Oct. 1, markets have been falling significantly. The Russell 2000 Index tumbled from 1,742 to as low as 1,266. The DJIA peaked at 26,951 and then fell as low as 21,712. That represents drops of about 35% and 24% at their bottoms, respectively.
While the psychological shift showed up in the Russell 2000 first in October, most of the downside really emerged as we rolled through December. Other indexes shared similar fates, such as the NASDAQ, S&P 500 and even most of the sub-sectors like the Dow Jones Transportation Average.
Penny Stocks to Watch
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As you may have heard, silver miners are my top pick for investment returns in 2019 (opinion only). That makes post-merger Americas Silver Corporation (USAS) potentially one of the best values going if events play out as I personally anticipate. Keep in mind that I am incorrect plenty, so it is important to look into any investment until you feel comfortable with making your own decisions and choices.
At the very end of the third quarter, Americas Silver entered into a definitive agreement to combine with Pershing Gold. In the words of the company, "The combination will add a shovel-ready, gold-silver development project in Nevada that adds significant precious metal growth to the company's production profile. Once completed, Relief Canyon is expected to produce 75,000 to 90,000 ounces of gold annually at low cash costs over an initial seven-year life and generate annual post-tax cash flow from $25 to $30 million. This transformative combination is expected to increase the company's precious metal production by over 5 times with precious metals representing greater than 60% of silver equivalent production."
About 586 employees enabled a revenue run rate of $70 million, which has helped Americas Silver build an asset position of $163 million (which easily covers its $47 million in liabilities).
Arotech Corporation (ARTX) is a security and defense company, specializing in training and simulation. Its 489 employees worked together to generate earnings of $3.8 million in the most recent fiscal year (out of $98.7 million in revenue) and $740,556 net earnings in the most recently reported quarterly period.
Arotech's P/E ratio (without extraordinary items) is a respectable 23.7, but when extraordinary items are considered, its P/E is a very compelling 12.5. The company's total debt (as of Sept. 30) was only $13.9 million, and its current ratio (current assets/current liabilities) was a strong 2.1.
An interesting and very important note that many analysts overlook is that Arotech has $40 million in operating loss carry-forwards. Put simply, that means the company can reduce any taxes it owes on the profits it generates until the full amount either gets used or expires (as it will in portions from 2021 through 2032).
In the third quarter of 2017, Arotech reported $61 million in backlogged orders. That same metric now sits at $70.7 million. In terms of guidance for full-year 2018, the company is expecting revenue of $95 million to $100 million and earnings per share (EPS) of 16 cents to 18 cents.
Ah, a business after my own heart! At my last doctor's appointment, they told me I had more caffeine in my system than blood. While I'm not sure if blood is "important," I happen to know that caffeine is even more so!
It's vital to understand that this doesn't make Coffee Holding Co, Inc. (JVA) a good investment. What does make the company compelling is the $77 million in fiscal 2017 revenue, the $467,000 in net earnings and the fat 16.8% gross profit margin.
This appears to be a great "recession-proof" investment, and I'd expect the stock to do very well as soon as it breaks out of what has been a seven-month price downtrend. Recent indicators on the Japanese candlestick chart are showing that the negative trend may be reversing now, such as trading volume increasing almost every day over the past few weeks and a break above the declining trendline.
Coffee Holding is a profitable, slow-moving business, which I expect will continue to do very well operationally. It is also a very easy business to understand, especially for less experienced investors to consider. I do not believe that Coffee Holding has much more downside from current prices, but the upside may be respectable and could go on for years once the stock starts heading higher. Unless, of course, people stop drinking coffee.
Hey, look at that! After facing expected price weakness during the overall market meltdown, shares dipped ... until they spiked strongly from $2.03 to as high as $3.33 within four trading days.
Many would think that this market action would mean most of the price potential for Luna Innovations Incorporated (LUNA) has been played out for the short term, but I see it differently. My expectation is that the stock will do exactly what every high-quality, well-run company does as it grows its operational footprint: increase its market share and improve its operational results. Specifically, Luna Innovations will likely enjoy rising share prices.
In my opinion, Luna Innovations stock may be an interesting long-term hold, especially when and if the shares ever break above the $4.00 mild resistance level. After that, the next price stop (over the long term) may be much higher levels, potentially somewhere in the mid-$5 range.
Alaska Communications Systems Group, Inc. (ALSK) is demonstrating one of my favorite trading patterns – a range-bound stock that forms a double bottom. Alaska Communications stock has been trading between $1.37 and $1.60 (range bound) and has hit $1.37 twice in two months.
This stock is range bound because there is a lot of value in the shares (which is why the floor formed), yet at the same time, the upside potential is somewhat limited, simply due to the constraints of the market (which is why the ceiling formed).
In my opinion, Alaska Communications stock is a great long-term hold, and the company has quite an easy-to-understand business model, making it somewhat more appropriate for newer investors. Trust that range-bound shares do not remain that way for ever, and when they break free, that "escape velocity move" is often strongly to the upside or downside. Most aspects of our Leeds Analysis review are suggesting that the eventual break for this stock will be in the upward direction.
As I mentioned last month, Information Services Group, Inc. (III) is a pioneer in just about every space it gets involved with. The corporation's solutions are absolutely cutting edge, and despite the wild growth this business has enjoyed, some of the greatest successes may yet lie ahead.
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.
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.
Disclosure: Peter Leeds personally owns shares and call options in Gold Resource Corporation (GORO). He has no intention to sell any shares any time soon, and he expects to hold, barring material events, for at least six months, and possibly even longer.
I believe that precious metals miners will be the best performing asset type in 2019. The biggest winners, in my mind, will be producers (as opposed to explorers) with solid financial positions, a track record of improving performance, great land claims and an excellent executive team.
Commercial production for Gold Resource started in 2010, which saw the shares rise to $31 while enabling a decade of reliable monthly (albeit small) dividend payments. The company's quest for gold, silver, copper, lead and zinc has concentrated its operational focus mainly on Mexico and Nevada. In fiscal 2017, Gold Resource generated $109 million in sales, which factored down to $36 million in gross profit. That amount then worked out to a final bottom-line profit of $4.15 million in earnings.
Gold Resource boasts $148 million in assets, which easily covers its liabilities of $26 million. With $16.6 million in cash alone (which works out to 29 cents per share), the company is well positioned to take advantage of any opportunities as it sees fit. A rising share price would vindicate the confidence that institutional investors have in Gold Resource – they currently hold 46% of all outstanding shares.
Finally, we are seeing precious metals prices on the rise. Gold and silver have quietly been inching higher, and that may be the last ingredient needed to put this stock right where I expect it will be and where the fundamentals say it should trade.
I personally feel strongly that Turquoise Hill Resources Ltd. (TRQ) is undervalued right now, and if not for precious metals and miners being the single-most unloved sector of any we've seen in several years, this stock would likely be trading much higher. Want to profit from the government shutdown? Look into "flight-to-safety" assets like gold and, by extension, the miners.
Document Security Systems, Inc. (DSS) purveys anti-counterfeit, authentication and diversion protection technologies, all in an industry slated to grow to $15 billion by 2022 from closer to $11.4 billion now. Gartner, a consultancy and technology implementation company, suggests that number will be $124 billion in 2019. Personally, I do not agree fully with the latter's optimistic view, but the point is the same and quite clear – this is an industry set up to grow fast.
Typically, all the companies leading the way in a rapid-growth industry are the ones that will be around for decades and will have the wind at their backs the entire way. That reality is partially what has helped Document Security Systems land some great operational result – fiscal 2018 revenue of $18.7 million, third quarter revenue of $4.1 million, $14.8 million in assets, $7.5 million in liabilities and total debt of only $2.15 million.
With only 17.4 million shares outstanding and a total market capitalization of only $12.4 million, this small company has a lot of growth ahead of it. In the short term, I don't see the wildly strong P/E of 5.9 remaining in the single-digit territory – more likely, the share price will rise over the months until that metric becomes a more realistic 12 to 14. That would probably be with a backdrop of rising earnings, meaning that the share price would have to increase by even more than it otherwise would have before that P/E ratio would be within realistic levels above 12.
We are glad to see the precious metals sector buck the negative trend we mentioned above, posting gains while most other investment classes melted down. As we've long been expecting, physical metals (such as rhodium, platinum and silver) are finally seeing the beginnings of the increase we are anticipating. By extension, the miners are and will continue to be the beneficiaries, in my opinion.
While government shutdowns generally have a very limited effect on stocks, the one impact they do have is to increase the prices of some "flight-to-safety" assets. Gold comes to mind.
For those who haven't been keeping an eye on the precious metal, it double bottomed at about $1,188 (August, October) and since then has climbed $100 per ounce to $1,281. In my opinion, the metal that will outpace even gold going forward will be silver (my very top investment of any kind in 2019, plus a great way to kill werewolves).
How To Buy Penny Stocks
To get started investing in these types of assets you'll need a broker. Some brokers are better for penny stock trading than others. If your interested in getting started with penny stocks you can take a look through Investopedia's list of the best brokers for penny stocks. The list can give you an idea of what the leading brokers in the space are so you can choose the right broker for your investment needs.
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.>