In my last "Penny Stocks to Watch" column, I wrote that "we have never been more vulnerable to a massive Minsky moment: a sudden market collapse that follows a long period of bullish activity."
Sure enough, the stock markets are in tatters today after worsening coronavirus fears took their toll on equity prices over the past month. The upshot: a lot of investors are running scared. And I think the market panic is just getting started.
Below, I provide updates on stocks I've written about here before and list three new ones that my team and I believe will fare well in a prolonged recession.
First, Some Updates ...
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.)
Smith Micro Software, Inc. (SMSI)
Around the middle of March, Smith Micro Software, Inc. (SMSI) prices sank drastically as the coronavirus threat – and the knock-on effects to the economy – grew more severe. (Pretty much every other stock fell off a cliff, too.)
But software firm Smith Micro Software is a tough little equity with a good track record for recoveries. In fact, it has already seen a near-20% rebound over the past week. While I expect volatility to continue to wreak havoc on the stock's performance, I also think it will emerge from this mess a victor over the medium to longer term.
Fortuna Silver Mines Inc. (FSM)
As you'll already know if you're a subscriber to my newsletter or YouTube channel, my team and I are very bullish on the precious metals complex. I'm especially excited about the silver miners, which are ridiculously undervalued and have massive upside potential as a flight-to-safety play, in my opinion.
Once gold prices and then silver prices rise – something I see as inevitable in the current market environment – then junior miners like Fortuna Silver Mines Inc. (FSM) should benefit tremendously. Some more patience may be required, but I expect Fortuna Silver investors to start reaping more substantial rewards by the end of this year.
Eros International Plc (EROS)
In these difficult times of self-isolation and quarantine, one market winner will of course be Netflix, Inc. (NFLX). Not only has its streaming entertainment saved countless people from losing their minds from boredom, but commentators are expecting share prices to hit the $400 mark very soon.
So what better time than to look into what might be termed Netflix's Bollywood equivalent, Eros International Plc (EROS)? I think we could see the stock quadrupling in value as increasing numbers of people all over the world are forced to stay home to prevent coronavirus contagion.
I note, however, that Eros International has seen its fair share of controversy around management strategy and the accuracy of its accounting methods. This one may be for risk-embracing readers only, in my view.
... And a Few New Ones
Penny stocks are notoriously volatile.
Americas Gold and Silver Corporation (USAS)
There is growing optimism in the markets around the precious metals and miners (just as I've been predicting for a while now). Even investors who previously disdained gold and silver are now running to the metals in the midst of all this market volatility.
This optimism has yet to manifest as substantially as I'd like, unfortunately. Nonetheless, I firmly believe that Americas Gold and Silver Corporation's (USAS) potential 300% production increase for 2020 through 2021 and excellent forward P/E ratio of 5.30, paired with a highly bullish outlook for the miners, will stand it in good stead over the next 12 months. Specifically, I wouldn't be surprised to see Americas Gold and Silver shares climb to the $4.50 level by the end of 2020.
Endeavour Silver Corp. (EXK)
Canadian silver miner Endeavour Silver Corp. (EXK) is down around 13% over the past month and is currently priced at a measly $1.38. We doubt that this will be the case for much longer, however. Although silver prices have taken a beating from coronavirus fears hurting industrial demand, prices are already up by a double-digit percentage over the year.
Despite some short-term volatility, we believe that the silver rally will continue over the next several years. Wall Street is currently predicting that silver will rise to the $19 level by the end of 2020. In this context, Endeavour Silver – with low debt/equity ratios, predicted earnings per share (EPS) growth next year of 150%, and a decent balance sheet – is looking like a no-brainer, in my opinion.
IAMGOLD Corporation (IAG)
Despite a strong balance sheet (with quick and current ratios of 3.60 and 4.70) and P/B ratio of 0.56 comparing very favorably with the industry median of 1.49, IAMGOLD Corporation (IAG) stock was priced at only $2.41 as of the time I was writing this report. Indeed, it's down around 40% from its 52-week high – which is exactly opposite to the way it should be trading right now, given all the turmoil in the markets.
As I stated above, however, we don't expect this situation to last much longer. The company was hurt by a bunch of operational issues in 2019, but full-year 2020 is looking good. To wit, management is guiding for attributable gold production of 700,000 to 765,000 ounces at total cash costs of $840 to $890 per ounce and all-in sustaining costs of $1,100 to $1,150 per ounce. Keep your eye on this one.
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The Bottom Line
Everyone wants to know when the market bottom will appear and how to best profit from it. As I explain on my YouTube channel, however, I don't think we'll receive any clarity on a recovery until the uncertainty around coronavirus wanes.
Until then, my team and I have faith that the precious metals miners will benefit from the market panic and a select few other penny stocks will weather the storm. Now, more than ever, is the time to do as much due diligence, research, and self-education as possible.
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.