The Russell 2000 has performed well over the month, taking many of our selections from last month's "Penny Stocks to Watch" blog higher over the period. In fact, some of the most notable selections from among the featured investments from February rose higher and out of penny stock territory altogether, above the $5 per share classification: Eagle Bulk Shipping Inc. (EGLE), Sandstorm Gold Ltd. (SAND) and BioDelivery Sciences International, Inc. (BDSI). Along with those, Turquoise Hill Resources Ltd. (TRQ) and Energy Focus, Inc. (EFOI) have been doing well.
While I still anticipate further upside from most of the previously featured penny stocks, our focus this month includes several new names that I expect to perform just as well as most of the previous selections.
Penny Stocks to Watch
<Disclosure: Many of the stocks mentioned above (and 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 important disclaimer regarding penny stocks.>
Genius Brands International, Inc. (GNUS)
Genius Brands International, Inc. (GNUS) is an interesting one. If its main show, "The Rainbow Rangers," does what CEO Andy Hayward anticipates, this investment will be a significant winner. Since he cut his teeth by writing for "The Flintstones," few know more about what works in this hyper-competitive industry than Mr. Hayward does.
Just like a national movie release, most fail … but those that win, win massively. It will be no different for Genius Brands and its animated productions.
In a recent letter to shareholders, Hayward stated, "Animated catalogs are an extremely valuable asset class. They endure. They are international. They spawn multiple income streams through the consumer products that come from the characters. They are impervious to technology, as we see good content will always find distribution regardless of whatever new platforms and technologies emerge."
Hayward has worked closely with Warren Buffett and Charlie Munger numerous times. In case you don't know who they are, at the very least, you've probably heard of "The Flintstones."
Despite small ongoing operational losses on the income statement, the balance sheet looks quite strong. Current assets of $8.1 million and total assets of $27 million outweigh current liabilities of $1.8 million and total liabilities of only $10.5 million.
Eastman Kodak Company (KODK)
I love that Eastman Kodak Company (KODK) is on our list. You guys remember Kodak, right? The company used to be huge when Rocky Balboa was battling Ivan Drago, Cyndi Lauper was at the top of the charts, and everybody was wearing sweatbands and fluorescent shirts (give or take a decade or so, but when I get a chance to mention '80s references in an article about a serious topic, I'll take it).
Anyway, it is now a completely different time, and Kodak is a completely different company. The question then becomes, is there any value to Kodak shares at their current levels? I believe so, and the coming months may be very rewarding for Kodak shareholders. The company has rebuilt itself as a complex technology corporation, with popular solutions for various aspects of the industry: commercial print, electronic displays, packaging, commercial films, 3D printing and various other fronts.
While having such a disperse focus may be a negative for any company, the good thing about the spaces in which Kodak operates is that many of them, including 3D printing and electronic displays, are rapidly growing industries. By building the solutions on the front lines of several up-and-coming technologies, Kodak is in a great position to grow rapidly.
In fact, I am already seeing some compelling operational results from the company's latest quarterly numbers. The corporation hit $1.5 billion in sales for fiscal 2017, and that translated down to $96 million in net earnings. On a quarterly basis, Kodak boasted net income of $19 million in the most recent three months.
Arcimoto, Inc. (FUV)
Arcimoto, Inc. (FUV) makes specialty electric vehicles, such as a fleet of three-wheelers for first responders, trucking/logistics delivery companies or zero-emission public transportation. The company has been so successful thus far that Arcimoto is sitting on 3,018 pre-orders, up from 2,800 as of June 2018 and 1,824 in September 2017.
One of Arcimoto's recent efforts involves a trial for rental locations, and the lower "initial cost of acquisition" may result in even more business for the company. There are many prospects who cannot afford the initial cost for one of Arcimoto's electric vehicles, and this rental strategy will very likely capture revenues from that segment, introduce a broader "potential future customer" base and expand brand awareness across the marketplace.
Arcimoto is aggressively expanding its marketing and is expecting to ramp up production throughout 2019, assuming it can raise funds. To that point, the company did in fact pull in $4.5 million from a recent financing effort. Management has indicated that the funds will be put toward production of an ultra-efficient electric vehicle.
"This financing will allow Arcimoto to take the next critical step: the semi-automated manufacture, assembly, and delivery of our first retail vehicles. With global demand for electric vehicles accelerating, we are confident that Arcimoto's vision – of a capital-efficient enterprise producing affordable, efficient, small-footprint EVs designed for everyday driving – is well-timed," said Mark Frohnmayer, president and founder of Arcimoto. He continued, "We believe this funding positions us to begin delivering on our 3,250 customer pre-orders, as well as deploy rental fleets in key destination cities."
AMERI Holdings, Inc. (AMRH)
It is always compelling when a 32-cent stock returns to profitability after a few periods of losses. In fact, AMERI Holdings, Inc. (AMRH) has achieved its second quarter of year-over-year adjusted EBITDA profitability, as reported on Nov. 14.
To state that more simply, AMERI Holdings is building operating momentum and making more than it spends. One caveat, which should be considered, is that much of the company's strong financial results were at least partially predicated by a significant, unusual, one-time, off-balance-sheet gain (from changes/adjustments to accounting treatments).
In English, this simply means that the company changed its estimate of how much it would need to pay out in relation to a prior acquisition. This is kind of like thinking you would have to pay $400,000 more on your mortgage, then realizing you only need to pay $300,000 – sure, it's great, but you aren't actually earning or generating that $100,000 difference.
Because it is confusing, I'm going to take one more crack at this: AMERI Holdings brought in an extra $7.3 million of net income, on paper, which was a one-time deal. Investors should recognize that much of the operational strength that has made AMERI Holdings stock compelling is a temporary and passing influence.
So, the question becomes whether AMERI Holdings will still be a winning investment even after considerations of the one-time, non-cash event. Well, I believe so, and a big portion of that confidence is the successes the company has been realizing with its profit margins.
In the third quarter, AMERI Holdings' gross profit margin increased to 22.2% from 20.5%. That may not sound like much of a difference, but as anyone running a business knows, even very small improvements in profit margins can be significant because they translate into significant operating improvements.
Alpha Pro Tech, Ltd. (APT)
One of the previous elections we made was Alpha Pro Tech, Ltd. (APT), and while the shares have not yet performed as I expected, there may still some upside to come, which may begin to materialize now. By way of reminder, Alpha Pro Tech protects people, products and the environment with protective and disposable apparel.
Alpha Pro Tech brought in $43 million in sales last year. The company has achieved some pretty stellar numbers: earnings each year going back to 2013, earnings just about every quarter over that time, total assets of $34 million and total liabilities of only $1.7 million. As I mentioned in the previous blog, "As long as surgeons and dental assistants wear protective masks or infections need to be controlled, there will always be a need for Alpha's products."
Alpha Pro Tech boasts a P/E ratio of a very strong 16.5 (which is now even stronger than when I mentioned it in February) and net earnings per share (EPS) of 23 cents. In fact, Alpha Pro Tech is a great recession-insulated business, given the importance of the solutions it offers, making the shares even more compelling.
Energy Focus, Inc. (EFOI)
In its latest financial results, Energy Focus mentioned that its focus is on top-line sales growth. This is just a means to an end, as its true goal is to return to profitability.
In fact, between buying back shares, initiating some new products (the sales numbers from which have been hitting record levels) and some serious cost-reduction efforts among its legacy products, the skies are looking clear for Energy Focus shares to appreciate.
This is a turnaround play that has been showing early successes, with all the right moves for returning to break even. Management has been doing a great job setting the company up to enjoy increased shareholder value.
Arc Document Solutions, Inc. (ARC)
Arc Document Solutions, Inc. (ARC) has produced net earnings in each of the past three quarterly periods, most recently to the tune of $2.6 million. Next comes quarter four, and if the company produces earnings again in that period, the full annual results will also show strong earnings.
On an annual basis, the last time Arc Document Solutions showed net earnings overall (fiscal year 2015, with $97 million in net income), its share price was above $10. Right now, shares are sitting at closer to $2.60.
That is not to say that simply returning to annual earnings means the stock price will quadruple. However, positive income results will be one of several major price drivers for shares of Arc Document Solutions, along with a few other notable metrics: market share gains, expected annual EPS of 15 cents to 18 cents and adjusted EBITDA of $52 million to $55 million.
The Bottom Line
At very least, whichever direction the markets move, that move will probably happen with greater-than-typical volatility. This means that there may be larger and quicker gains … but there is always the other side of the coin – downside moves might be an inch uglier than many expect.
Just be ready, be fast with decisions, react to events quickly and watch closely. Of course, with investing, you should always keep those guidelines in mind, but they may be even more important going forward throughout this tumultuous and uncertain time.
P.S. Newer investors: Always start by paper trading. Learn to trade profitably first, before ever using actual money. Keep track of imaginary trades in real stocks while you refine your skills and strategy.
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.>