We're only a month into 2020, and the year is already shaping up to be one heck of a wild ride. Looking ahead, I'm expecting escalating tensions in Asia and the Middle East, many more rounds of trade talks, greater concern around climate change, and the U.S. presidential elections to send investors scurrying left and right as market hysteria takes sway.
As I've explained on the Peter Leeds YouTube channel, against this chaotic background of geopolitical and environmental turmoil, the incoming recession is already a foregone conclusion, in my opinion. Remember, however, that recession is a healthy and necessary part of the economic cycle – and I'm preparing to see a lot of companies' valuations descend to more realistic (read: lower) levels as compared with the overblown numbers of yesteryear.
It'll be scary for a lot of shareholders, sure. But more cautious investors who have performed their due diligence may be able to find incredible opportunities once the blood is in the streets. Below, I've listed some penny stocks that just might be sturdy enough to ride out the storm, in my view.
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.)
Rekor Systems, Inc. (REKR)
Another month, another update on Rekor Systems, Inc. (REKR). I just can't stop talking about this stock. Can you blame me? Rekor Systems is always delivering fresh new surprises.
In the past month, for example, prices have climbed 32%. And if you'd been holding Rekor Systems over the past quarter, you'd probably have noticed that it soared a spectacular 98%.
As I said in last month's update, I believe that the uptrend will continue over 2020. That said, I'm also pretty confident that we'll continue to see a lot of volatility in the price. This one's a roller-coaster, folks. Hang onto your hats.
Polar Power, Inc. (POLA)
I first discussed Polar Power, Inc. (POLA) in my "Penny Stocks to Watch" column for December 2019. As of the end of the year, it had only climbed a disappointing 7% ... but the year 2020 has been kind so far to Polar Power.
Specifically, over the past month, the stock has gained 35% on the back of the excellent news that the company had "received certification from the Environmental Protection Agency (EPA) for Toyota 1KS natural gas and LPG engines used in Polar's DC power systems." (You can find the press release here.)
With Polar Power's next set of results due to come out in mid-February, I'm betting that the stock will see a lot more action over the next few weeks. As of the time I was writing this article, Polar Power was giving back some of its gains. But if the power company can keep up the strong revenue growth of 35% it recorded in the last quarter, then I expect prices to start barreling their way toward the $5 mark.
B.O.S. Better Online Solutions Ltd. (BOSC)
Another December 2019 "Penny Stocks to Watch" pick that I've been keeping a close eye on is B.O.S. Better Online Solutions Ltd. (BOSC), which has moved up a respectable 9.5% over the past month or so. While shares have been stuck trading sideways more recently, the company's announcement of a new order from a Brazilian plastics manufacturer could spur B.O.S. Better Online Solutions' price to new heights – that is, if more investors can take notice of this Israeli micro cap.
But so far, no dice. It's unfortunate that B.O.S. Better Online Solutions is generally so underappreciated, because there's much to like about the stock. Take, for example, its superior P/E ratio of 10.19, P/S ratio of 0.28, and P/B ratio of 0.65. I'm hoping that the firm's next set of quarterly results, scheduled to be released on Feb. 25, will bring more positive attention to the stock and send prices hurtling toward $3 again.
New Penny Stocks to Watch
Penny stocks are notoriously volatile.
Sachem Capital Corp. (SACH)
The Peter Leeds Team likes Sachem Capital Corp. (SACH) so much that we've featured the company twice in our newsletter. Sachem Capital – pronounced "SAY-chem" – bills itself as "a real estate finance company." On the firm’s website, Sachem Capital says that its "real estate lending activities involve originating, funding, servicing, and managing short-term loans (i.e., loans with an initial term of one to three years), secured by first mortgage liens on real estate property held for investment purposes located primarily in Connecticut as well as Massachusetts, Rhode Island, and New York."
In the years since I first selected it to appear in my newsletter, Sachem Capital eventually stock made it to $5.70 for a better-than-decent gain of 33% in the summer of 2019, almost exactly one year after it was first featured. Now that Sachem Capital is back down to the $4.20 to $4.30 levels again, my team and I think the stock remains an excellent way to play the high-risk real estate investment trust (REIT) sector. We fully expect the stock to return to last year's highs … and then some.
The company also has a far lower P/E ratio of 10.86 than the sector average at around the 20x levels, implying that it's a great value at its current price. Furthermore, Sachem Capital's forward P/E of 9.05 is superior to that of many of its more expensive peers.
Did I mention that Sachem Capital has an 11.16% dividend? It also has a spectacular 82% gross margin and 55% operating and profit margins. Revenue, moreover, has either been growing or stable over the past five quarters and the past five years. This is definitely one to explore further, in my opinion.
Entercom Communications Corp. (ETM)
In a world always looking for the next big thing, mention "radio broadcasters" like Entercom Communications Corp. (ETM) to most retail investors, and you'll likely get a big yawn in response. But it would be a mistake to underestimate the money-making potential of radio, in our view.
Think of all the cash that Entercom Communications stands to make this year on the back of the upcoming U.S. presidential elections in November. Specifically, the company is expecting net political revenues for 2020 to grow by $20 million. Wall Street is expecting Entercom's overall revenue for this year at $12.25 billion to have climbed at least 8% since 2019. In my view, the stock price doesn't reflect the 17% positive earnings surprise Entercom turned in during its last set of quarterly results, as well as its double-digit growth in digital and network revenues alongside average 31% sales growth over the past five years.
Interestingly, Entercom entered the massively burgeoning podcast space last year with its purchases of Cadence13 and Pineapple Street Media for a total of $48 million. My team and I are excited about the rapidly increasing popularity of podcasts, and while the space is crowded, Entercom is now among the top-three podcast enterprises in the United States. The company's Radio.com app, the fastest-growing digital audio application in the United States with 60% year-over-year growth in monthly active users (MAUs) as of the last quarter, is also intriguing.
Needless to say, I’ll be paying close attention to ETM’s next set of quarterly results, which are due to come out on Feb. 21.
CUI Global, Inc. (CUI)
My final "Penny Stock to Watch" this month is CUI Global, Inc. (CUI), an Oregon-based firm that describes itself as engaged "in the acquisition, development, and commercialization of power and electromechanical components worldwide. The company operates in two segments, Power and Electromechanical, and Energy."
The stock is undeniably a high-risk one. As recently as September 2019, it was priced at a mere $0.50 amid widespread investor concerns about CUI's leadership. But things may be looking up for the company. CUI share prices are up 50% over the past quarter after news emerged in December that the company had regained NASDAQ listing compliance and that it would be conducting a "$5 million share repurchase authorization."
Of the latter, Executive Chairman William J. Clough stated in the press release, "We are pleased to return a portion of the proceeds from the recent divestitures of non-core assets to shareholders in alignment with our continuing efforts to enhance shareholder value. A portion of the proceeds will also be utilized to support our Energy-centric growth strategy."
Given the most recent quarter's revenue growth of 17% as well as five-year average sales growth of a not-at-all-bad 10%, CUI stock is looking like a pretty good deal to me – albeit one that comes with a big side order of volatility and risk. However, if the group's earnings per share (EPS) are indeed able to climb 50% next year (as they are currently expected to), then we could see a big boost to CUI's prices as some of the concerns around the company's management are assuaged.
The Bottom Line
People often ask me why I specialize in explaining penny stocks to investors when so many of those cheap equities are just plain bad: intensely volatile gambles offering shoddy products and services and helmed by inept management teams. The fact is those people are absolutely right; 99% of penny stocks are, actually, really that bad.
I'm always on the lookout for diamonds in the rough, however, and my team and I serve up some of the best disregarded and highest-quality stocks in this column (and, in greater frequency and detail, in the Peter Leeds newsletter for paid subscribers). So, while the year ahead may be a tumultuous one, let's take comfort in the fact that exciting stock market opportunities will still abound, even among the most inexpensive and volatile stocks.
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.