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There is a clear conclusion to be reached from the US election results – the American people wanted to discard the drama of both President Trump and Democratic Party, and are willing to do so by installing a Democratic President while increasing Republican strength in Congress and down ballot. A result like that points to future gridlock, at least in the near-term, and that in turn could be just what that markets want. A deeply divided government is unlikely to make any drastic policy changes, to the right or to the left, allowing the financial world to keep plodding straight along.
Which means, we may be near a bottom for many stocks with depressed share values. If so, this effect may be most visible among the so-called penny stocks, shares with a selling price below $5. These stocks are already close to the true bottom of the market, and basic statistics shows that they are more likely than not going to rise.
However, before jumping right into an investment in a penny stock, Wall Street pros advise looking at the bigger picture and considering other factors beyond just the price tag. For some names that fall into this category, you really do get what you pay for, offering little in the way of long-term growth prospects thanks to weak fundamentals, recent headwinds or even large outstanding share counts.
Taking the risk into consideration, we used TipRanks’ database to find compelling penny stocks with bargain price tags. The platform steered us towards two tickers sporting share prices under $5 and “Strong Buy” consensus ratings from the analyst community. Not to mention substantial upside potential is on the table.
Sequans Communications (SQNS)
Sequans Communications is a chipmaker, with a solid reputation in the 4G market and a forward-looking focus on the 5G and IoT sectors. The company has incorporated several generations of tech developments into its IoT chip designs, and become a leading innovator in that market.
So far, the chaotic conditions of 2020 have not been easy for SQNS. The company has been hit hard by disruptions in the supply and distribution chains, and is down 48% since hitting its peak in July.
On the plus side of the ledger, revenues rose – as they have been all year. The Q3 top line was $14.1 million, which represented a 15% sequential gain and an impressive increase of 116% year-over-year.
Currently going for $4.09 apiece, Sequans shares could see major gains, according to some analysts.
Covering the stock for Roth Capital, 5-star analyst Scott Searle points out the company’s upbeat potential: “Sequans continues to hit key customer and product development milestones. The places the company on track for samples in late 2021. Importantly, in addition the anticipated $10M 5G strategic opportunity, Sequans is actively engaged with several additional potential partners. We believe that the company remains uniquely positioned to become a tier 1 supplier into specialized 5G applications that we expect to represent 10’s of millions of units by the 2023-2025 time frame in terrestrial FWA, satellite, public safety, etc. We highlight that Ericsson continues to forecast FWA lines to increase from 51M in 2019 to 160M by 2025, representing a $500M to $1B TAM.”
To this end, Searle rates SQNS a Buy along with a $13 price. Should his thesis play out, a potential gain of 218% could be in the cards. (To watch Searle’s track record, click here)
Sequans holds a unanimous Strong Buy rating from the analyst consensus, based on 4 Buy reviews given in the last two months. Furthermore, the average price target suggests it will more than double, growing by 148% from current levels. (See SQNS stock analysis on TipRanks)
Repro-Med Systems (KRMD)
Next on the list, Repro-Med Systems, is a medical device company. This small cap company inhabits a competitive niche – but one with a high profit potential when new treatments or devices are approved. KRMD designs products for infusion therapies and emergency medicine, two vital segments of the medical market. The company operates under the name KORU Medical Systems.
KRMD peaked this year in April, and has been losing ground in share value ever since. The stock is down 69%, even though revenues grew in 1H20. Results for the calendar third quarter were mixed; the top line slipped sequentially to just over $6 million, but cumulative sales for the first three quarters of 2020 are up 19% from the same period in 2019. Operating expenses have been stable, and gross profit totaled over 64% of net sales. The company finished the quarter with $32.4 million in net cash available.
Kyle Rose, 5-star analyst with Canaccord, sees an opportunity here, especially for investors willing to shoulder some risk. He writes, “For investors that can play these smaller names we view this as a compelling buying opportunity. The headwinds in the Q3 are a near-term challenge but far from a long-term thesis changer. We continue to think investors will need to look past quarter/quarter volatility to ascertain longer-term annualized trends, which continue to look positive here. KRMD benefits from a persistent trend away from IV to SC Ig delivery and offers a compelling value proposition that positions the company to emerge as the standard of care for large volume subcutaneous drug delivery.”
Acknowledging the headwinds, Rose rates KRMD a Buy along with a $10 price target. This figure suggests strong growth of 164% in the year ahead. (To watch Rose’s track record, click here)
This is another stock with a unanimous Strong Buy from the analyst consensus. That rating is based on 3 Buy reviews, and points to Wall Street’s confidence. The average share price is $9.67, which indicates a 155% upside from the trading price of $3.83. (See KRMD stock analysis on TipRanks)
To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.