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A good-quality penny stock will often require tremendous patience from its shareholders. In fact, when I pick a low-priced equity that looks to be a winner, I usually wait between six and eighteen months to gauge whether my opinion was correct or not. For every penny stock that sees lift-off right away, you’ll find dozens of others that will stretch your patience thin as a rail.
This is because many of these cheap stocks are operating in unloved industries, turning a corner after a series of missteps, or finally taking their first steps toward achieving growth. Effecting a comeback (and winning back the market’s confidence) can take time. A lot of time.
Still, my years of trading have taught me again and again that my patience is almost always rewarded, provided I’ve conducted my due diligence and—just as importantly—listened to my gut. In this month’s column, you’ll find some low-priced stock ideas that are currently interesting me very much. I hope you’ll find them interesting too … and that your gains will come sooner rather than later.
Some of the set-ups I describe below may no longer be relevant or intact as of the time you read this article. Please conduct your own due diligence. Many stocks mentioned here were also discussed in the Peter Leeds Newsletter. Peter may own shares in some of the investments mentioned, in which case that fact will be clearly indicated. Please note that penny stocks are notoriously volatile.
First, Some Updates
Alto Ingredients, Inc. (ALTO)
I first mentioned Alto Ingredients, Inc. (ALTO) in this column at the very beginning of October, and it’s had a pretty great ride since then, ascending between 7% and 25% over the course of the month. The problem? These rises happened on the back of … not very much at all.
A fairly significant price climb with no real company news to back it up is often a red flag for me, unfortunately. And indeed, shares were back down to $5.32 as of the time I started writing this article (although they did jump up around 5% as of the first day of November).
This could mean ALTO was taking something of a “breather” before climbing once more. But without the company announcing some interesting piece of news very soon (perhaps at its upcoming earnings announcement on Nov. 8), I believe it’s more likely investors will start to take further gains and that the name could sink way back down again.
In the long term, I still believe in Alto Ingredients’ strong potential, given its great turnaround plan and some very promising financials. But for the short term, we could see some volatility ahead unless management recaptures shareholders’ attention in some way. Again, the earnings could be a significant catalyst.
Gold Resource Corporation (GORO)
I’m delighted to report that gold miner Gold Resource Corporation (GORO) was up 17% over the past month. As anyone who follows my work will know, I’ve long believed that the junior gold and silver miners are deeply and egregiously undervalued. Accordingly, much of my own portfolio comprises those very stocks.
In my last write-up on Gold Resource stock in August, I said that the stock was turning a corner after 18 months of misery—and I believe that now more than ever. On an industry-wide level, I believe that gold prices will climb because I’m bearish on the global economy. On a company-specific basis, GORO’s strongly recovering sales and earnings per share (EPS) in the most recent quarter, both of which are in the triple digits, portend far more gains ahead—at least, in my view.
I can’t think of a better trade right now than to invest in a big gold miner like Barrick Gold Corporation (ABX.TO) and to sit back and watch the money roll in once the economic downturn I predict occurs. But if Barrick’s too rich for your blood, there are plenty of low-priced gold equities like GORO that will do just fine as well, albeit likely at a lag to the bigger caps. (Please note that I own shares of Gold Resource stock.)
Entravision Communications Corporation (EVC)
The Entravision Communications Corporation (EVC) freight train continued to chug along in October, netting its ecstatic shareholders 108% over the past six months alone. Congratulations to the Investopedia readers who are among them!
To be perfectly honest, I keep waiting for this one to take a breather and offer investors a lower entry point. The market can’t get enough of EVC at the moment, however, and at its current price of $8.39 per share, it’s no longer a penny stock. I doubt that it will drop below $5 again any time soon.
But who can blame the market for loving Entravision? The company’s revenue and earnings have shown triple-digit growth over the past three quarters. Not only that, but some of the technical signals here, including the moving averages and oscillators, are pointing to a Strong Buy.
I note that EVC’s third quarter results—due in just a few days from now—could stymie the group’s momentum if they fall below consensus estimates. I don’t expect that to happen, however, and even if the market is disappointed by the earnings, I suspect that shares will bounce back quickly.
Some New Ones
Denison Mines Corp. (DNN)
It has been an excellent year for the uranium stocks in 2021. After a decade-long bear market for uranium following the Fukushima disaster, some investors are betting on nuclear energy emerging as the best and most viable alternative to fossil fuels. So far, their bet has paid off big-time.
A quick look at the stats for Denison Mines Corp. (DNN) reveals a great balance sheet (current ratio is 5x, debt/equity ratio is 0x), EPS next year forecast at 33% growth, and an almost 58% boost to revenue as of the most recent quarter. Wall Street (and Bay Street, the Canadian counterpart) are also upbeat on the stock, with four “Very Bullish” ratings and two “Bullish” ratings.
Denison’s flagship mine, the Phoenix project, is in Saskatchewan, Canada, which is favorable in terms of red tape, infrastructure, and political volatility. Denison also recently revealed that it would proceed with a feasibility study in the Wheeler River area, which has been found to contain high-grade uranium. All of this is very promising indeed.
Some people may counter that uranium stocks are overhyped and trendy at the moment and that, with facilities re-opening following the pandemic, the supply shortage will end. Then (so goes their thinking), prices would decrease, and so would share prices.
What they’re not acknowledging is quite how bad uranium prices have been over the past ten years. In 2011, the radioactive element was trading at $70/pound, and right now it’s $45.90. So sure, prices are better than they were in October 2020 (when they were only $30/pound) … but in my opinion, they still have significantly higher to go. To be precise, I’ll be looking for $60 to $100/pound in the near future.
Make no mistake: Denison Mines is highly speculative. We’re talking about a company that hasn’t turned a profit in five quarters. But if you’ve been looking for a low-priced way to play the revival in nuclear energy, DNN could be worth your time and money.
Talkspace, Inc. (TALK)
Speaking of speculative stocks … Many people quite simply don’t have the finances to seek help from a professional about mental health and addiction issues. Talkspace, Inc. (TALK) is built on an idea whose time has certainly come: that cognitive behavioral therapy (CBT) does not need to break the bank.
Unfortunately, the company is hemorrhaging money, losing $70.40 million in the third quarter of 2021. There’s also a lot of competition in the space, and the barriers to entry are low.
It’s hard to blame Talkspace entirely for its high losses. Google and Facebook are leveling insanely high advertising costs on TALK and its peers, putting a huge dent in the combined net incomes of the entire space.
That said, I’m going to take a contrarian stance here: investors could be writing off Talkspace too quickly. Its excellent balance sheet (9.0 quick and current ratios, 0.0 debt/equity ratio), P/B ratio of 0.47, and P/C ratio of 2.24 speak to its ability to tough it out through these growing pains.
Meanwhile, EPS are set to jump 60% next year, and sales in the most recent quarter climbed 73%. The gross margin is at a very solid 63%. In terms of technical analysis, the relative strength index (RSI) is at 32.55, suggesting that the stock is oversold and due for a trend reversal.
Finally, I believe that the future of CBT lies in companies like Talkspace. Global recognition of the importance of mental health care will only continue to spread, in my opinion, particularly in countries with a growing middle class like India and China.
Even more than the stocks I usually feature here, TALK is best viewed as a long-term hold whose true value may only become apparent in a year, eighteen months, or even longer. It carries significant risk, but the reward could be just as abundant for investors with faith in the company’s vision and, of course, patience.