The well-known unpredictability of penny stocks requires investors to have a strong understanding of technical analysis in order to capitalize on the volatile price fluctuations. However, when considering these small- and micro-cap stocks, investors often question the rationale behind investing in a particular company. To address this concern, investors should consider additional factors such as:
- Is the company offering a unique and improved product or just another ordinary product?
- Does the company have a solid business plan that would make it an attractive acquisition target for established firms in the industry?
- Is the company operating in a growth industry that presents promising opportunities?
Chesapeake Energy (OTCMKTS: CHKAQ)
The decision to invest in Chesapeake Energy (NYSE: CHK) largely depends on your prediction of the future movement of oil and gas prices. After facing challenges during the previous recession and accumulating a debt of approximately $10 billion, CHK stands to benefit more from an increase in oil and gas prices compared to larger oil corporations. The stock has already shown a 15% gain in 2018, reflecting the rise in oil prices to nearly $70. Analysts predict that these prices could reach $120 by the end of 2019, which would result in a significant price increase for CHK.
Furthermore, the company has recently announced asset sales to reduce its debt by around $2 billion. Its second-quarter earnings report also highlighted a viable strategy to compensate for the revenue loss resulting from these asset sales.
2 – Mid-Con Energy Partners LP (NASDAQ: MCEP)
Mid-Con Energy Partners LP (NASDAQ: MCEP) serves as an example of the challenges faced by small-cap firms in the oil and gas industry. Despite reaching a peak of $27 per share in 2013, the company’s stock plummeted during the oil price collapse from 2014 to 2016, eventually becoming a penny stock priced as low as $0.73 per share. Despite the recent rise in oil prices, the stock has struggled to gain momentum and remains around $1.75 per share
Although sales are projected to stay below $60 million through 2019, the stock has still experienced a notable increase of over 42% for the year. However, it is important to consider whether these projections account for the potential rise in oil costs.
If oil prices surge from the current level of approximately $70 per barrel, Mid-Con could present a promising long-term opportunity in the penny stock market. Historically, the stock remained stable in the $20s range when oil was selling at $120 per barrel.
3 – Advantage Oil and Gas Ltd. (NYSE: AAV)
Advantage Oil and Gas Ltd. (NYSE: AAV) stands out as a favorable choice for investors seeking an oil and gas company with a solid track record. Although the firm reported lower financial results compared to the previous year, its profit margin for the first quarter was an impressive 29%, significantly surpassing the sector average of 6.1%. The demand for Canadian oil, driven by factors such as Iran sanctions and anticipated production issues in South America, suggests that this profitability will continue. Economists even project a $1.4 billion profit for the entire Canadian oil sector in 2018. These optimistic projections have contributed to Advantage’s future price objective of $5.90. As of December 2022, the stock is currently trading around $3.10.
4 – Castle Brands (NYSE: ROX)
Castle Brands, ROX (NYSE), may have established a floor in the market for its shares, indicating the potential for an upward trend. The company boasts two standout product lines: the Dark & Stormy cocktail, featuring Gosling brand Black Seal dark rum and ginger beer, and Jefferson bourbon, which experienced a 20% increase in sales in 2018, serving as a cornerstone in their whiskey lineup. Despite consistent revenue growth and profit expansion in recent years, the overall gain remains modest. With 166 million outstanding shares, there could be some downward pressure on the price. However, the fact that insiders control 30% of the shares suggests a positive outlook from the management team.
In the future, Castle Brands could be an attractive investment opportunity. If the stock were to break out of its narrow trading range, it is likely to move higher.
Sportsman’s Warehouse (NASDAQ: SPWH)
Sportsman’s Warehouse (NASDAQ: SPWH) is showing strong technical signals of being underrated, with a trailing P/E ratio of 11.5, significantly lower than the S&P 500, and a 3.4% increase in same-store sales during the first quarter of 2018. However, analysts remain skeptical about the company’s sales figures. Although the business reported profitability in its latest financial report, the profits per share remained stagnant at $0.15 year over year, indicating potential cost increases. This slower expansion compared to the specialized retail industry could be a factor. Nonetheless, Sportsman’s Warehouse expects solid sales and EPS figures for the rest of 2018, which should support the current upward trend of the stock.
Driven by strong earnings announcement, the stock has surpassed its simple moving average and still has room to reach its 52-week high. With a share price that is 7 times the expected EPS for the following year, there is potential for further growth.
Limelight Networks (NASDAQ: LLNW)
Limelight Networks (NASDAQ: LLNW) presents an investment opportunity based on the future of streaming content. Through the development of Content Delivery Networks (CDNs), Limelight empowers businesses to ensure efficient performance and accessibility of content. Industry experts project that CDNs will carry 71% of all internet traffic by 2021, a significant increase from the 52% in 2016, driven by the demand for seamless streaming experiences. However, competition looms from companies like Facebook and Netflix, who aim to establish their own CDNs for greater control over internet traffic and speeds. Nevertheless, this threat appears to be diminishing for now, benefiting Limelight, which reported a 14% revenue growth in the first half of 2018. With the stock recently crossing its 50-day SMA, as of December 2022, it is trading at approximately $4.85 per share.
Plug Power (NASDAQ: PLUG)
Expecting a different outcome by repeating the same actions is considered insanity. Therefore, investors should find it encouraging that Plug Power is taking a novel approach to increase shareholder value for its stock. As the pioneer of hydrogen fuel cells, the company aims to challenge the perception that renewable energy has consistently struggled to provide a return on investment.
In recent years, Plug Power has formed partnerships with major companies such as Amazon and FedEx, in addition to its existing agreement with Walmart since 2014. These collaborations hold significance as companies like Amazon are actively seeking alternative power sources to enhance the productivity of their forklifts and minimize downtime.
DHX Media (NASDAQ: DHXM)
In the realm of digital media, content holds immense value. This perspective may uplift investors when considering DHX Media. Although the stock has experienced a significant decline of 35% this year, it might have reached its lowest point as it currently trades near its simple moving average. DHX Media has taken a significant step towards solidifying its position as the largest independent collection of children’s content worldwide by acquiring the intellectual property of Peanuts. This addition complements their existing portfolio, which includes popular titles like Yo Gabba Gabba, Inspector Gadget, Strawberry Shortcake, and Teletubbies. Furthermore, DHX Media strategically sold 39% of their stock to Sony after acquiring Peanuts, reducing their debt and gaining a strong partner. DHX Media could be considered a sector play, particularly as more individuals opt to cut the cord and transition to digital and streaming media.
Arotech Corporation (NASDAQ: ARTX)
Arotech serves as an interesting example of a penny stock within the military sector, despite its market worth of $88 million. Operating in multiple countries and competing with industry giants like General Electric and Honeywell, the company has a forward P/E ratio of 13, which could be considered inexpensive if it can accelerate its growth. While their sales in 2017 reached $98.72 million, slightly lower than in 2014, it is worth noting that Arotech has been in business since 1990, indicating a gradual path to success. In 2017, the company achieved a gain of 17 cents per share, with predictions suggesting a rise to 18 cents in 2018 and 26 cents in 2019. This optimism is largely driven by anticipated increased military spending under the Trump administration.
Year to date, Arotech’s stock has experienced a 12% increase. Currently priced at $3.40, the stock is trading just below its 20- and 50-day SMAs.
mCig Inc (OTCMKTS: MCIG)
mCig Inc. (OTCMKTS: MCIG) represents a speculative bet within the highly sensitive cannabis industry, concluding our list of the top ten penny stocks. Before considering an investment in mCig, investors should evaluate whether they anticipate the nationwide legalization of marijuana across all 50 states. Specializing in the construction of marijuana growth facilities, mCig plays a crucial role in supporting farmers by providing the necessary infrastructure, such as greenhouses. The potential of mCig is influenced by the limited number of licenses granted in each state. However, as more states ease their regulations on marijuana, competition increases, leading to a decline in marijuana prices and the closure of some cultivation operations.
