Do you think penny stocks are best left to amateur traders who don’t understand that cheap stocks are cheap for a reason? It’s not an entirely unfair assessment. Many of these young (and doomed companies) are the beneficiaries of great sales pitches, but their investors often end up suffering buyer’s remorse.
It’s a misnomer, however, to think all penny stocks — let’s quantify them as equities priced at less than $5 per share — aren’t worth owning. Thanks to factors ranging from prolonged weakness in the commodities market to strategic stock splits to poorly-timed IPOs, a handful of these low-priced equities are actually compelling prospects.
In fact, here’s a run-down of four of the best penny stocks to mull for 2018, and maybe beyond, none of which aren’t exchange-listed names.
Penny Stocks 2018: AK Steel Holding Corporation (AKS)
One would think the steel business to be a steady and predictable one, with these stocks (and steel prices) ebbing and flowing more or less with the bigger economic cycle. One would be wrong in thinking this, however. The steel industry is a volatile mess, with ever-changing supply and demand making it impossible for the likes of AK Steel Holding Corporation (NYSE:AKS) to commit to a plan for the future.
The end result? An already-cheap AKS stock has basically gone nowhere for the past 15 years, with everything that could go wrong during that time going wrong at an inopportune time.
That may finally be on the verge of changing, however. With President Trump at least willing to try to level the playing field between the United States’ steel companies and overseas rivals at the same time the global economy appears to be picking up some steam, AK Steel is in a proverbial sweet spot. Analysts think so anyway, with earnings and revenue projected to grow this year and next.
Penny Stocks 2018: PDL BioPharma Inc (PDLI)
PDL BioPharma Inc (NASDAQ:PDLI) is a curious beast. It was initially established as a vehicle to acquire the rights to, or patents on, highly marketable drugs that would ultimately drive income for its investors.
It worked too… for a while. As time marched on, however, drug developers realized they could do for themselves what PDL was doing. Ergo, PDL BioPharma has been struggling for a while now to acquire drugs and marketing rights at prices that left room for healthy dividends. That’s a big part of the reason PDLI stock has fallen from a value of more than $30 in 2006 to a price of only $3 per share now.
The bears may have overshot with their pessimism though. As of the most recent quarterly report, PDL has more cash in the bank than the market cap it presently sports. The former is a whopping $532 million, versus the latter of $462 million.
PDL BioPharma could arguably overpay for a drug and still be money ahead.
Penny Stocks 2018: Groupon Inc (GRPN)
Talk about a fall from grace! Yes, Groupon Inc (NASDAQ:GRPN) was a marker darling when it went public back in 2011, at a price of $28 per share. It has a honeymoon that didn’t last long at all though, with shares retreating into penny stock territory less than a year later … where it’s been stuck ever since.
And truth be told, Groupon shares deserved the beating they took. Not only was its pre-IPO growth rate not built to last, a host of competition has stepped up to the plate in the meantime. Net income peaked in 2012, and sales peaked in 2015.
The daily-deals company may have finally found a winning formula though, setting the stage for a better 2018 and beyond. Analysts say that while revenue is apt to fall another 7% this year, income is projected to improve from last year’s 11 cents per share to 19 cents per share. Next year, sales are expected to grow just a bit, and per-share profits are projected to reach 24 cents per share.
That may be all traders need to see to get this stock back in a nice uptrend.
Penny Stocks 2018: Zynga Inc (ZNGA)
Source: Brownpau via Flickr (Modified)
Last but not least, put Zynga Inc (NASDAQ:ZNGA) on your list of penny stocks to mull for 2018. Yes, this is the same Zynga behind great online games like Words With Friends, FarmVille and several other titles you may not have realized were part of its library.
And yes, this is the same Zynga that Facebook dropped an exclusivity arrangement with back in 2012, undermining its well-received IPO from 2011 and sending the stock to a sub-$5 price where it’s been (almost) ever since. Though Zynga hasn’t done poorly, it’s certainly not done nearly as well as investors were expecting it too when it first IPO’d.
Change is brewing though. CEO and founder Mark Pincus has decided to give up his control of the company by scrapping the two classes of voting shares that granted him an inordinate degree of voting power.
That’s not to say he alone was the reason the company was unable to grow in a meaningful way, but it certainly didn’t help. In the meantime, that news comes at a time when revenue and income are starting to edge higher anyway.
Not too many investors have noticed yet, but when they do, ZNGA is apt to get over the $5 hump. A more equitable voting rights scheme will only bolster the bullish case.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.