Think of penny stocks as the canaries in the coal mine of the global economy. Even at the best of times, these low-priced equities are typically ultra-volatile, swinging between heart-sinking lows and dizzying highs in the course of a single day.
But with fears of a recession growing stronger every day, many of the more speculative penny stocks saw more losses than gains over the past month as investors moved their cash to safer shores, which included long-term bonds. This flight to safety has in turn spurred the much-discussed yield curve inversion, whereby interest rates on certain long-term bonds have become lower than those on short-term bonds.
The media has told us repeatedly that this is one of the most reliable signs we have to let us know a recession is approaching and that it has in fact heralded every financial crisis of the past 60 years. As I discuss over at my YouTube channel, however, this is no time to get stuck in the weeds or lost in the minutiae of abstract economic concepts. The savvy investor knows to look at the big picture and maintain patience in the stocks he or she believes in.
I'm hoping some of the penny stocks I mention below – including a new junior precious metals miner, a maker of headphones, a ride-share disruptor, and a speculative nuclear play – will inspire you to conduct further research into the companies and their industries, and help you find interesting investment ideas. I'm also including updates on a provider of electronic vehicle charging services, a metrology solutions provider, and a junior silver miner, all of which my team and I have high hopes for over the long term.
No doubt, investing in penny stocks in uncertain economic times is a contrarian take on the market. But if your risk appetite is strong and your patience is ready to be tested, any one of these stocks may be an intriguing avenue for you to explore.
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)
I included 3D metrology solutions provider Perceptron, Inc. (PRCP) in our Penny Stocks to Watch list back at the beginning of August. Since then, the stock has tracked an overall 25% increase, even briefly leaving penny stock territory behind on Aug. 8 to reach a peak of $5.64.
The stock price had backtracked fairly substantially as of the time I was writing this article, however. At one point, Perceptron shares descended all the way back to the $3.75 to $3.85 level at which the stock was trading when my team and I included it as a Hot List pick in the Peter Leeds newsletter.
Despite all of these ups and downs, I'm still feeling positive about Perceptron's future. With a zero debt-equity ratio, and 2.10/2.70 quick and current ratios, its fundamentals are quite solid. The company's AccuSite technology also looks promising, and given its purported ability to save other companies money, it might just make Perceptron more recession-proof than some other stocks.
Perceptron's results are set to come out soon after this article is published – on Sept. 4 after the markets close – so traders should watch for likely significant developments in the share price over the first week of this month.
Rekor Systems, Inc. (REKR)
The roller coaster for Rekor Systems, Inc. (REKR) was back in action over the month of August after what I predicted would be a short break in its forward momentum. That quick tumble from $5.44 to below $3.00 frightened off a number of potential investors, and even now, the price still hasn't totally recovered.
I will note that I'm concerned about Rekor's high debt levels. However, the company's explosive 240% growth in its technology segment between the first and second quarters of 2019, as well as its predicted earnings per share (EPS) growth for next year of 183%, leads me to believe that the potential positives may outweigh the negatives here.
Blink Charging Co. (BLNK)
Trading at $2.69, Blink Charging Co. (BLNK), one of our Penny Stocks to Watch from June, is currently up 72% from its 52-week low. I can't say I’m surprised – when I included it on the list, I was flabbergasted by how undervalued the stock was.
Finally, with an upgrade to a Strong Buy rating from a well-known investment website and, more importantly, a plethora of recent press releases announcing the deployments of charging stations for electric vehicles, Blink is getting a bit of the respect it deserves. We could certainly see Blink Charging stock move even higher in the next few months, in my opinion, as the company expands its operations in Europe and all over the United States.
Avino Silver & Gold Mines Ltd. (ASM)
Avino Silver & Gold Mines Ltd. (ASM) turned in a rather disappointing performance over August, dropping in value even as silver prices finally began to rise. So what gives? As a basic rule, when you see that a given company isn't participating in a larger industry uptrend, you can bet that something company-specific has been hindering its progress.
In the first week of August, Avino reported break-even quarterly earnings that beat the consensus estimates calling for a loss of $0.01 per share. Still, that beat wasn't enough for Avino investors, who have been selling off the stock since its results were released on Aug. 7, likely due to Avino's quarterly revenue decline of 15%.
Here's management's explanation of the "meh" results: "During the second quarter of 2019, we experienced an unplanned downtime of five days due to labor negotiations regarding the closure of the San Gonzalo Mine; this, together with a decline in the feed grade at San Gonzalo, had an impact on our earnings during the second quarter of 2019," said David Wolfin, president and CEO. "However, during the quarter, on a positive note, the commissioning of the tailing's thickener, which began during the first quarter, has been completed on schedule and has transitioned to full operation. In addition, I'm very pleased that our teams in Mexico and Canada continued their diligent approach to reducing our G&A expenses with a 24% reduction this quarter compared to Q2 2018 and a 32% reduction year to date. We will continue to focus on profitable ounces and keeping costs controlled company-wide."
Obviously, CEO David Wolfin would have been more reassuring if he'd been able to provide some indication of where he expects revenues to go in the third quarter of this year. That said, my team and I are still feeling positive about the silver miner's prospects. In my opinion, when the market finishes digesting the results news (which was disappointing – but certainly not horrendous), Avino stock could explode once more as precious metal prices continue to rise.
And all that news about the inverted yield you've been seeing in the press? In my view, that's definitely going to be driving even more investors to gold and then, with a slight lag, silver.
Penny stocks are notoriously volatile.
Koss Corporation (KOSS)
Milwaukee-based stereo headphone manufacturer and marketer Koss Corporation (KOSS) has been around since 1958. Its products are on display in the Smithsonian Museum. And it has made headphones that have rested on the ears of such icons as Tony Bennett, Bobby Hackett, and Frank Sinatra … er, Junior. (Also, if you're a fan of the now sadly defunct "Mad Men" series on AMC, you may remember that Koss was an important client of the Sterling Cooper ad agency.)
Koss' fall from grace happened all the way back in 2014, when almost overnight the stock price fell from close to $7 to near the $1 levels. We suspect that the culprit behind the gargantuan loss of value comes from both a long period of consecutive top-line losses and the rise to prominence of Dr. Dre's Beats headphones.
We're arguing today that now may be the time to take a second look at Koss stock – not necessarily as a maker of premium headphones (which I expect will take a beating amid the recession anyway), but as the manufacturer of solid technologies at reasonable prices that the average consumer can actually afford, and with availability all over the globe.
Revenue in the past quarter, for example, was up a pretty respectable 11.40%, and EPS in the same quarter were up a glorious 122.5% on increased sales in the Europe and Emerging Europe regions. Koss has a high current ratio of 4.50 and zero debt-equity and long-term debt-equity ratios. Total assets are almost $20 million against total liabilities of $5.16 million. Add to all this a stellar P/E ratio of 10 and excellent P/S, P/FCF, and P/B ratios of 0.61, 11.88, and 0.97, respectively, and Koss stock increasingly looks to be a great deal at its current under-$2.00 price.
As of the time I was finishing this report, Koss shares sprang up from around $1.90 to approximately $2.90, then promptly fell off a cliff again to land at $1.85. The good news: with trading volume way above average for KOSS, I wouldn't be at all surprised such a stunning ascent happen again soon.
Great Panther Mining Limited (GPL)
Junior silver, gold, and zinc miner Great Panther Mining Limited (GPL) is a stock I've been watching for a long time now, and I don't think I've ever seen it looking so oversold as it is right now at a $0.77 price point (as of the time I was writing this report). In contrast to many other precious metals stocks, which have seen substantial gains lately on the back of rises in the prices of gold and silver, Great Panther Mining took a promising leap upward at the end of July only to fall back down again after its results were released. Suffice it to say shareholders were not happy. The miner announced a fairly major negative earnings surprise of 300%, with a quarterly loss of $0.02 per share versus Wall Street’s expectation of a $0.01 gain.
Here is Great Panther's explanation for the miss: "Mine operating earnings (inclusive of amortization and other non-cash charges) showed a small decrease to $2.7 million despite the impact of the acquisition of Tucano. In this regard, Tucano was limited to processing lower-grade oxide ore in the month of April until the commissioning of the supplemental oxygen system, which resulted in both lower average feed grades and recoveries for the month. Tucano also finished the quarter with high doré and refined gold inventory of approximately 7,300 Au oz, most of which was either with the refiner or in transit. As compared to the second quarter of 2018, mine operating earnings were lower at the company's Mexican operations due to planned lower output at the Guanajuato Mine Complex ('GMC'), while the company continued with the exploration program at the Guanajuato Mine. Mine operating earnings at Topia were impacted by higher smelting and refining charges, a number of non-recurring costs, and general cost increases."
Notably, CEO James Bannantine told us to expect an improvement over the next quarters: "Tucano achieved our production guidance for the second quarter and drove a 165% increase in revenue and a 187% increase in mine operating earnings before non-cash items over the second quarter of last year. More importantly, Tucano started to show additional meaningful improvement in grade and recovery after the commissioning of the supplemental oxygen system at the end of April. This key improvement in processing, combined with increasing productivity and a higher-grade mining sequence commencing in August, are expected to lead to an improvement in earnings for the balance of the year. For July month to date, Tucano is tracking to our third quarter guidance."
As with one of our other precious metals selection Avino, Great Panther may not benefit as greatly from the general industry uptrend as some of the miners with more reliable and robust profit generation. Then again, both stocks are priced a lot lower than those others and therefore have even more substantial room to grow. In short, I'm a believer in Great Panther (and Avino) for the long term, despite any possible further blips in their price trajectory over the next year or so.
Lightbridge Corporation (LTBR)
Lightbridge Corporation (LTBR) belongs to the highly unloved nuclear power industry, which has been out of favor with just about everyone since the Fukushima Nuclear Disaster in 2011. Consequently, Lightbridge stock has been stuck in a rut for a while now. Case in point: over the past 52 weeks, it has traded in a pretty pitiful $0.49 to $1.12 range – although, notably, its performance on a year-to-date basis is up approximately 18%.
This last point, in addition to Lightbridge's growing portfolio of intellectual property and promising new partnership with NuScale Power, suggests that the company has a lot of space to grow, in my opinion.
Maybe not tomorrow. Maybe not even in a few months from now. But as the world continues to demand more energy, fears of climate change grow, and the memories of Fukushima recede, nuclear power may start looking good again to a lot of people.
HyreCar Inc. (HYRE)
Another one of my recent picks for the Peter Leeds newsletter, HyreCar Inc. (HYRE), hasn't yet managed to get the word out there about its highly intriguing soft innovation: helping people to lease out their cars, when not in use, to ride-sharing service drivers working for such mammoth firms as Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT).
If, however, management can promote HyreCar better, thereby increasing brand awareness among potential customers and shareholders alike – and it appears that the company is already taking steps to do so – then we think HyreCar could have a ton of upside ahead of it. Unsurprisingly, the lack of brand awareness around HyreCar has led to the company hemorrhaging cash, with net operating cash flow at negative $7.15 million in 2018.
Yikes. But all this could be changing. HyreCar management is participating in a number of investor conferences, which is great news. Furthermore, quarterly sales were up 106% as of the most recent quarter, with EPS for next year expected to soar 108%. In my opinion, at the stock's current low price, HyreCar may be an extremely interesting company for certain investors given the high-potential nature of its services – but it's up to HyreCar's management to bring this potential to full fruition.
The Bottom Line
Some of my favorite personal rules for investing are also the simplest ones: Keep tight stop losses on the more speculative stocks. Average up, not down. And most importantly, do your research – but don't forget to listen to your gut, too.
With the trade war rhetoric growing more heated and Germany's economy – the fourth largest in the world – shrinking rapidly, you can expect to see much more volatility in the markets, especially among the penny stocks, in the weeks ahead. Hang on tight, folks. I think it's going to be a wild ride.
(See Also: Top 3 Oil and Gas Penny Stocks for 2019)
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.