5 Speculative Penny Stocks Under $5 That Deserve Your Attention

| February 4, 2020 | 0 Comments
penny stocks

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These five penny stocks could go bust … or they could go boom

As I’ve said many times before, stocks in the under $5 crowd (or “penny stocks”) should be avoided by risk-adverse investors. After all, there’s a reason these stocks are below $5, and it’s because investors have sold them in bulk to below $5 (no stocks go public at a sub-$5 price tag).

As such, there’s usually something “wrong” with these penny stocks, implying tremendous risks, which makes them speculative stocks that should only be considered by those who can stomach volatility. In other words, stocks under $5 aren’t for your lunch money.

But, if you have money that you’re okay with putting at-risk, then taking a few bets on some penny stocks can be worth it. After all, buying penny stocks can yield big returns. See wearables maker Fitbit (NYSE:FIT), which went from under $3 to over $6 in a matter of months in late 2019 thanks to an acquisition. Or online insurance marketplace EverQuote (NASDAQ:EVER), which went from $4 to $40 over the course of 2019 as the company’s core business gained impressive momentum.

Because these are high-risk, high-reward stocks, the key to success in buying stocks under $5 is picking the right ones to maximize reward potential. It’s also important to pick enough of the right ones to spread out the risk.

With that in mind, let’s take a look at five of speculative high-risk, high-reward penny stocks that deserve your attention now.

OrganiGram (OGI)

Stock price as of this writing: $2.50

One penny stock which could explode higher in 2020 is small cap Canadian cannabis producer OrganiGram (NASDAQ:OGI).

The 2020 bull thesis for OGI stock breaks down into two parts. The first part is that the Canadian cannabis market should swing higher over the next twelve months. On the Canadian front, legal cannabis market demand trends should meaningfully accelerate thanks to the introduction of cannabis 2.0 products like edibles and vapes, as well as the rapid expansion of cannabis retail stores.

For example, Ontario — Canada’s largest province by population — is set to issue new store authorizations at a pace of 20 stores per month in 2020 (there’s only 27 stores open per day), while Quebec is adding roughly two new stores per week. British Columbia and Albert are also set to ramp retail expansion.

Meanwhile, the second part of the bull thesis is that OrganiGram is well positioned to be one of the fastest rising boats in this market in 2020. This is thanks to: 1) OrganiGram’s broad exposure to the edibles market through its signature chocolate products, 2) the company’s relatively low production costs, which will enable them to sell new cannabis products at discount prices, and 3) management’s commitment to expense control, which will allow for big revenue growth in 2020 to turn into big profit growth.

If everything does go right here and OrganiGram’s revenue and profit trends meaningfully improve over the next twelve months, then OGI stock could fly higher.

Speculative Penny Stocks under $5: Stage Stores (SSI)

Stock price as of this writing: $1.25

Let me put up extra warning signs on this one: an investment in Stage Stores (NYSE:SSI) should be considered very risky, mostly because this stock is either going to either go to zero or soar to $10.

For the longest time, Stage Stores was written off as a dying department store operator. Then, in 2019, management announced a radical transformation plan that included converting all of the company’s full-price Stage Stores locations into off-price Gordmans locations. It was a genius move. To-date, Stage Stores has converted nearly a hundred full-price stores into off-price ones. These off-price stores are performing far better than their full-price peers. Sales and margins across the whole company are dramatically improving, and this improvement is why SSI stock soared from $1 to $10 in late 2019.

But this change may be too little, too late. Specifically, the bulk of the off-price transformation is set to happen in 2020, and Stage Stores somewhat dropped the ball in the holiday quarter to the point where they may not have enough resources to see this off-price transformation through to the end. That’s why the company has reportedly brought in outside financial and legal counsel to either refinance or restructure the debt, making bankruptcy a real risk here (the report which broke this news is why SSI stock plunged to $1 recently).

Going forward, one of two things will happen. Either Stage Stores does have enough resources to keep going forward with the off-price transformation, they proceed to convert upwards of 500 full-price stores in 2020, sales and profit trends materially improve, and SSI stock soars back to $10. Or, Stage Stores doesn’t have enough resources to keep converting stores, they are forced into a debt restructuring situation, and SSI stock plunges to zero.

NIO (NIO)

Stock price as of this writing: $4.30

Chinese premium electric vehicle (EV) maker NIO (NYSE:NIO) has been on a roller coaster ride over the past year and a half. It increasingly looks like this roller coaster ride is ready for a sharp upturn in 2020.

Long story short, NIO started selling premium EVs in China in mid-2018. At first, these premium EVs were selling like crazy in China. As the company’s deliveries and revenues roared higher, NIO started to remind investors of an early-stage Tesla (NASDAQ:TSLA), and NIO stock soared.

Then, in 2019, NIO hit some major turbulence. Escalating U.S.-China trade tensions slowed economic activity throughout China and stalled auto demand. At the same time, China substantially cut its EV subsidy in 2019, leading to doubly depressed demand in China’s EV sector. NIO’s delivery trends started to decline. So did revenues and NIO stock.

But the NIO growth narrative has picked up steam over the past few months, as strong momentum from the company’s new car, the ES6, has breathed growth back into the company’s delivery and revenue trends. These trends should continue to improve in 2020, thanks to three major catalysts.

First, U.S.-China trade tensions are easing at the same that China is expanding bank landing capacity, two dynamics which lay the groundwork for improving economic activity in China. Second, China has stated they won’t cut the EV subsidy this year. Third, NIO is launching another new car in a few months.

Yes, the wildcard here is the Wuhan coronavirus. But that wildcard will likely be short-lived. As such, once that headwind passes, NIO stock should roar higher behind improving delivery and revenue trends.

Plug Power (PLUG)

Stock price as of this writing: $4

Hydrogen fuel cell (HFC) maker Plug Power (NASDAQ:PLUG) has been on fire over the past year, with PLUG stock rising from $1 to $4 amid favorable developments in the company’s core materials handling market. Such favorable developments should persist in 2020.

HFCs are simply electrochemical power generators that combine hydrogen and oxygen to produce electricity. They are similar to electric batteries in that they are an alternative solution to power things like cars and trucks, except they use hydrogen. Despite some advantages relative to electric batteries (such as shorter recharge times, less storage space, and longer shelf lives), HFCs have failed to gain mainstream adoption in the passenger car market, mostly due to safety concerns and a lack of hydrogen charging infrastructure.

HFCs are starting to gain traction in the materials handling industry (think forklifts), where big enterprises can leverage HFC’s advantages to reduce costs and improve productivity, without having to bear the disadvantages (in a warehouse where the forklifts aren’t traveling far, safety concerns are dramatically reduced and there’s no need for a widespread recharging infrastructure).

This is great news for Plug Power. They already have major materials handling contracts with multiple Fortune 500 customers, including Walmart (NYSE:WMT) and Amazon (NASDAQ:AMZN). Over the next several years, as hydrogen tech improves and as these companies feel pressure to both cut carbon emissions and reduce costs, Plug Power will sign up more and more Fortune 500 customers, while current customers will place bigger orders.

As all this happens, Plug Power’s revenues, profits, and stock price should all charge materially higher.

Express (EXPR)

Stock price as of this writing: $4.20

The management team over at struggling apparel retailer Express (NYSE:EXPR) recently announced a bold turnaround plan, which includes speeding up product launch times, closing stores, and gutting a bunch of expenses. If they pull it off — and I think they can — then EXPR stock could soar from today’s $4 price tag.

Things have been ugly at Express for a long time. The company is riddled with negative comparable sales growth, eroding margins, declining profits, and a rapidly dropping stock price. But management thinks that they can right this sinking ship through a few big changes over the next few years.

Those big changes include relaunching the store’s loyalty program, doubling down on the Brand Ambassador program, and improving product speed-to-market times by more than 20%. At the same time, management plans to close about 100 stores and cut costs by up to $80 million.

Management predicts that, if done correctly, these changes will enable Express to stabilize sales in the $2 billion range, and improve its operating margin to around 5% by 2022.

I think that’s totally doable. Express is unique in the apparel retail world in that they make branded clothes for young professionals. This is a necessary niche with enduring demand drivers. Quicker product launch times and better marketing should allow Express to more optimally capitalize on this enduring demand, and lead to sales stabilization. Concurrently, store closures will decrease the expense base, which on top of improved sales trends, will produce a slimmer, better, and more profitable retailer.

If all goes well, my modeling suggests that Express could be looking at over $1 in earnings per share by 2022. That would make today’s $4 price tag seem like a steal.

As of this writing, Luke Lango was long SSI, NIO, and PLUG.

 

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Category: Penny Stock Alerts

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