In my opinion, a recession is either just around the corner or already well on its way. As a result, my team and I are finally seeing gold receiving the love it deserves, with prices at above $1,400/ounce – their highest levels in six years.
It isn't rocket science: with risk premiums going way up, and economic uncertainty growing, investors are slowly finding their way back to the safe haven stocks like the precious metals, especially gold, and health care.
Various global and macroeconomic events (which I explain and discuss on the Peter Leeds YouTube channel) are becoming more relevant by the day. Many of the events that the markets have an eye on are at tipping points, and in a number of cases, they led to the stock selections you will see below.
I believe that all of the stocks I'm listing today – including a severely undervalued silver miner out of Canada, a firm producing liquid biopsy tests, and an educational materials company – have the ability to withstand the potential economic storms looming ahead. These include the possibility of a prolonged trade war with China and an escalation of the conflict with Iran.
The best part? Like all penny stocks, the following companies are currently trading below $5. But in contrast to just about every other penny stock out there, my picks combine good or decent fundamentals with outsized potential. Below, you'll find some updates on my previous Penny Stocks to Watch selections from May and June, followed by four new equities that I believe may deserve your attention.
Penny Stock Updates
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.>
Rekor Systems, Inc. – REKR
The last time I looked into Rekor Systems, Inc. (REKR), a selection from our May list of Penny Stocks to Watch, shares had shot up 62% to $1.12. While Rekor subsequently returned some of those gains, it has since more than redeemed itself by rising another 117% over the past month.
All in all, that's a 208% year-to-date gain for this security firm, whose automatic license plate reader software is currently being used by the U.S. Department of Defense and Nokia Corporation (NOK). The past month showed an exponential increase in client wins, and I expect more to be added to Rekor's roster very soon.
There are a few red flags to report here, however. The debt-to-equity ratio has climbed to an untenably high level of 14.53, and the relative strength index (RSI) – my favorite technical indicator – is at 82, suggesting that Rekor stock may be overbought at the moment.
CVR Partners, LP – UAN
Nitrogen fertilizer producer CVR Partners, LP (UAN) witnessed an overall mildly dispiriting performance in June, slipping 0.79% overall. But shares came roaring back to life this past week, ascending 10% to a peak of approximately $3.80 over the past few days.
What gives? The reasons are not immediately apparent. However, I think a combination of Moody's upgraded "Stable" rating for CVR Partners and hopes that the next meeting between the heads of U.S. and China at the G-20 conference will have resolved the ongoing trade war.
Nonetheless, most commentators are predicting a negative outlook for the fertilizers industry on the back of weak global demand and the trade disputes. However, with a 68% quarterly increase in earnings per share (EPS) and projected EPS growth of 28% next year, this is a contrarian pick that may be of interest to investors who are looking for ultra-high-risk, high-reward options.
Hi-Crush Inc. – HCR (formerly HCLP)
After testing investors' patience sorely, raw frac sand producer Hi-Crush Inc. (HCR) is finally beginning to deliver on the abundant promise it seemed to offer when we first included it in my Penny Stocks to Watch list.
Case in point: shares rocketed 18% in June after an otherwise dismal performance over the past quarter of -36%. Maybe the market is beginning to catch on to the fact that Hi-Crush has an incredible sales track record of 36% on average over the past five years. Meanwhile, EPS next year are forecast to rise 933%.
Hi-Crush management is communicating its confidence in the company's future by initiating a $25 million stock repurchase program. With the company's results set to come out after market close on Aug. 6, we'll be learning soon enough whether this confidence is misplaced or not.
STRATA Skin Sciences, Inc. – SSKN
My team and I included dermatological medical device company STRATA Skin Sciences, Inc. (SSKN) in our newsletter back in 2018, and it ultimately netted our subscribers a gain of 108%.
As of last month, I saw that STRATA stock had returned to its erstwhile low price levels and decided to profile it again here in hopes we'd see another meteoric rise from the stock. Sure enough, over the past month, prices have risen a very decent 12%, even though they've returned around half of those gains over the past few days.
This wasn't the substantial increase my team and I were expecting from STRATA Skin Sciences. However, I still like the stock a lot and plan on holding onto it for a while based on its strong fundamentals, including its average five-year sales rate of 137% and an iron-clad balance sheet with quick and current ratios of 4.00 and 4.50, respectively.
Brand New Penny Stock Ideas
Penny stocks are notoriously volatile.
Avino Silver & Gold Mines Ltd. – ASM
Avino Silver & Gold Mines Ltd. (ASM) was my team's most recent choice as the weekly "Hot List" pick for our newsletter. Here’s what we wrote about it:
"While gold has soared in recent days, silver has been stuck around the $15.50 resistance level. In our opinion, however, this stagnation is set to change to an uptrend big-time, and very soon at that.
The recent performance of Avino backs this up, in our view – giving us a glimpse into the kinds of double-digit gains that we believe precious metals (PM) investors should expect over the short to medium term.
Over the past month, Avino is up 30%, with around half of that growth happening in the last week alone. Still, over the past year, Avino stock has recorded a precipitous 56% drop, and even at its current price of $0.56, it's ridiculously undervalued."
I believe that Avino's share price could easily double over the next six months as silver catches up with gold. While there are cheaper silver miners out there, I'm especially liking Avino for its low debt levels and stellar forward P/E ratio of 6.87.
Biocept, Inc. – BIOC
Oncology diagnostics firm Biocept, Inc. (BIOC) describes itself as "develop[ing] and commercializ[ing] proprietary circulating tumor cell (CTC) and circulating tumor DNA assays utilizing a standard blood sample. The company's cancer assays provide information to health care providers to identify oncogenic alterations that qualify a subset of cancer patients for targeted therapy at diagnosis, progression, and monitoring in order to identify resistance mechanisms."
In May, Biocept announced its commercial launch of a liquid biopsy test for lung cancer, and over the past year, the company has announced the addition of two patents from China and Japan to its global portfolio of 33 patents.
The current recession could decimate a number of industries, but I firmly believe that the defensive health care sector won't be one of these. While any penny stock will always be a highly risky proposition, Biocept is an inexpensive way to play it relatively safe in tough economic circumstances, in my view – especially now that it's witnessing some very robust sales and EPS figures.
If trading volume can pick up strongly for this one, and I expect it will, then I believe Biocept will be making its investors very happy very soon. Let's hope that management will be making the rounds at more investor conferences in the months to come.
Encana Corporation – ECA
Currently trading two cents over the $5 mark, oil and natural gas producer Encana Corporation (ECA) isn't technically a penny stock anymore. (That particular honor is only bestowed upon stocks priced at under $5.) For those who are willing to pay a tiny bit extra, however, I believe that this could be a great entry point for investors wanting a low-priced foothold in the energy space.
Encana's strong operations, six consecutive quarters of earnings beats, and P/E ratio of 6.60 all point to the stock being significantly oversold at the moment, in my opinion.
Granted, the balance sheet isn't as strong as I would like, and debt is higher than I'm usually comfortable with. I nevertheless think these admittedly big drawbacks are already factored into the relatively low share price, and I believe we might see Encana stock returning to $7 levels not too long from now – especially since oil prices typically spike right before a recession.
Barnes & Noble Education, Inc. – BNED
A lot of investors will see the words "Barnes & Noble" and balk, given the commonplace these days that bookstores have been rendered totally obsolete by the internet. But Barnes & Noble Education is less your typical neighborhood bookstore and more accurately described as a purveyor – online and off – of educational materials for kids and, in particular, college students.
The group is currently engaging in what it calls a "digital pivot" away from brick-and-mortar bookstores, and investors have seemed pleased with the results. To wit, after Barnes & Noble Education released its most recent set of earnings in the last week of June, shares rose 14%.
It's worth remembering that the number of students attending college in the U.S. is high at approximately 78 million. Further, a university education will likely continue to be perceived by many as crucial to finding a place in the job market.
It's also worth noting that college students are something of a captive audience to the makers and distributors of educational materials. In contrast to average readers, who can choose what they want to read, a college student is more or less mandated to read certain materials at the risk of failing his or her course.
Barnes & Noble Education not only sells physical textbooks to these students but rents and sells them digitally. So, although the most recent set of results revealed a net loss of $24.4 million for fiscal year 2019, investors are betting that the company is on the precipice of a turnaround.
So am I. I'll be following Barnes & Noble Education's progress closely over the next few years.
The Bottom Line
As I frequently discuss on my Peter Leeds YouTube channel, I'm seeing intense volatility across the markets – and it's unlikely that many if not most investors will walk away from the disaster completely unscathed, in my view.
Volatility isn't necessarily a bad thing, however. Remember: a vast number of millionaires were made during the Great Depression as fresh opportunities sprang up in the most unexpected places.
What did all those newly minted millionaires do right? They stayed awake and paid attention to all the possibilities of the new world unfolding in front of them, even as all the old certainties began to crumble.
If you can do the same, the future may be bright.
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.