Penny stocks are a fascinating part of the stock market. The high risk and high reward of penny shares make them compelling. Everyone has seen this stock that went from $ 1 to $ 10 a share and made a small fortune for traders. On the other hand, it’s no secret that most penny stocks aren’t great investments. After all, companies don’t typically go public at low stock prices. You come from consistently disappointing earnings and business performance along the way.
This leads us as investors to the question of whether these penny stocks can make a comeback or whether they are stuck in a sustained downward spiral.
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However, there are some traits that can lead to success such as: For example, an improving industry environment, a strong balance sheet, or an excellent competitive position that can cause certain penny stocks to rise again. Here are seven such penny stocks that have solid prospects for the future: InvestorPlace – stock market news, stock advice and trading tips
Hexo (NYSE: HEXO)
Castlight Health (NYSE: CSLT)
BIO-Key International (NASDAQ: BKYI)
Ambev (NYSE: ABEV)
Clear outdoor channel (NYSE: CCO)
Corporacion America Airports (NYSE: CAAP)
Grupo Aval (NYSE: AVAL)
Watch Penny Stocks: Hexo (HEXO)
Granted, I’ve rated HEXO stocks negatively in the past. Investors were definitely quite bullish about marijuana stocks in the past, which resulted in a significant overvaluation of Hexo and other secondary marijuana companies.
However, the tide may turn. If HEXO shares are now trading below 80 cents per share, the price is ultimately correct. The immediate catalyst is the upcoming presidential election. If the Biden / Harris government wins, it should turn out to be a favorable turn for the cannabis industry. While it is unclear whether the new president will seek decriminalization or a policy of benevolent neglect, he should create the conditions for a friendlier government. We could expect changes, such as banks being willing to lend to cannabis companies.
This might not make much of a difference to Hexo right away. This is because Hexo is primarily focused on Canada and Quebec. However, Hexo’s biggest problem lately has been excess inventory. Any additional opening of the markets should improve the conditions for other actors. In the meantime, Hexo is faced with a positive EBITDA in the first half of 2021. The company’s financials are currently not impressive. However, given the soaring marijuana market, HEXO stock could gain a foothold here.
Castlight Health (CSLT)
Software companies were one of the hottest sectors in the market in 2020. So far, Castlight Health has not benefited from it. This is understandable given that sales growth in the healthcare software business has stalled in recent years.
However, if Castlight ever had time to find his booth, now is the time. Castlight provides a healthcare portal that connects doctors and hospitals with patients. The importance of this type of marketplace has increased with telemedicine. Castlight is also involved in helping patients find Covid-19 testing sites and other time sensitive things. In the future, however, the real opportunity lies in the core management of health services for employees. Companies emerging from Covid-19 may spend more money upgrading their health plans.
It’s unclear if Castlight Health can grow back. However, we know the company has a solid record. As of the June 2020 quarter, Castlight had $ 44 million in cash while total debt was just $ 17 million. This gives the company enough runways to start looking for a path to profitability.
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The company currently has annual sales of around $ 150 million and a market capitalization of just $ 150 million. That’s just 1x revenue for a software company. Sure enough, Castlight has obvious flaws, namely that it is struggling with sales growth and causing significant operating losses. However, if Covid-19 succeeds in capitalizing on higher health spending, stocks could rise significantly.
BIO-Key International (BKYI)
Source: Pavel Kapysh / Shutterstock.com
BIO-Key is a company that focuses on multi-factor authentication, especially using biometric inputs. For example, think of devices that read fingerprints to enable access to secure systems and facilities. While the company hasn’t grown much in scale yet, it recently announced new contracts and the current pandemic could act as a catalyst to driving more business in environments thanks to remote working. A timely contract to secure voter registration data was also recently signed.
BIO-Key raised a significant amount of money this summer, providing capital for the further development of its business. It also acquired PortalGuard, which has hundreds of customers for its secure corporate login platform. All of this means that BIO-Key has several irons in the fire that can cause the stocks to rise from their current level at any time.
Readers should be aware that like many penny stocks, BKYI stock is actually quite speculative. After all, stocks trade at 45 cents each, and the company has no history of profitability. With that in mind, it may be wise to take an active approach to trading these types of stocks. BKYI stock tends to climb to around $ 1 per share from time to time. Taking profits on these regular increases can help reduce the risk involved in trading these types of low-cost volatile companies.
Source: Anton Garin / Shutterstock.com
Ambev is the subsidiary of global brewing titan Anheuser-Busch InBev (NYSE: BUD). As it sometimes happens, the company’s offspring are more attractive than the parent. AB-Inbev is facing a huge debt burden and difficult beer market in the US and parts of Europe.
Ambev, on the other hand, is exposed to cheaper regions. Ambev sources most of its business from Brazil, but also has breweries in Spanish-speaking South America, Central America, and Canada. The shares of the ABEV share have been hit hard in recent years, mainly due to the economic weakness in Brazil and Argentina. However, at some point enough is enough.
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Ambev has no net debt and has the # 1 market share in most regions. Aside from Canada, there is almost no threat to craft beer in the markets that Ambev operates in. The stock is now down as Ambev didn’t see an operational pick up in 2020. Just as Brazil got back on track, the novel coronavirus pandemic hit. This closed bars and restaurants and canceled many live sporting events that are part of the drinking culture in South America. However, with Ambev’s strong balance sheet and dominant position, this company will generate refreshing profits once the global economy regains its foothold.
Delete outdoor channel (CCO)
When you listen to the radio, you can think of Clear Channel as the huge radio station franchise. But that’s actually no longer it. Rather, this business is now called iHeartMedia (NASDAQ: IHRT). The remaining Clear Channel Outdoor business is focused on billboard and display advertising.
While standard billboards may not look particularly attractive given the long-term trends in car ownership, this is the smaller part of Clear Channel’s business. The majority comes from advertisements in local traffic and advertisements on the street in city centers. Demand for this type of advertising has obviously fallen with the pandemic, but should return when people return to work and walk around big cities.
CCO stock is currently trading at $ 1 due to debt issues. Given the leveraged balance sheet, traders feared Clear Channel could go broke. However, the stock has already rebounded from 36 cents to a dollar as worst Covid-19 fears were not allayed. As things continue to recover, CCO stock could return to pre-pandemic levels of $ 3 per share.
And as always, when you have a clear indication that a company can make a comeback, just reach out to the executives. Do insiders buy stocks or stand aside? In the case of Clear Channel, insiders haven’t given up. Benjamin Moreland, director of Clear Channel, bought an additional 400,000 shares of CCO in August for $ 1.18 each. That was a nearly half a million dollar bet that Clear Channel would continue to be profitable. With this purchase, Moreland now owns 996,225 shares of Clear Channel.
Corporacion America Airports (CAAP)
Corporacion America Airports is one of the world’s largest private airport operators. It has concessions from Italy to Brazil, Argentina, Uruguay and even the Galapagos Islands. The airports together carried 84 million passengers in 2019 and were thus on par with Los Angeles International or London Heathrow.
However, since going public in 2018, CAAP stock has collapsed. The stocks are now down from $ 16 to $ 2. There are two reasons. The first is that the company’s flagship is the international airport that serves Buenos Aires. Argentine voters chose to return to the left government in 2019, and the country’s currency has collapsed since then. Not surprisingly, investors dumped Argentine assets.
What they miss about CAAP stocks is that they collect their airport earnings in US dollars rather than Argentine pesos. CAAP currently earns $ 51 per international passenger. Thus, despite the economic chaos, it is still entitled to a fine profit margin. Second, 40% of the company’s business comes from holdings outside Argentina.
Even if you rate Argentina at zero, the company’s airport holdings in Italy, Brazil, and other countries generate EBITDA of around $ 150 million per year. However, the entire company only sells twice its market capitalization. This, in turn, means Argentina has sunk to zero. International airport operators tend to achieve at least 10 times the EBITDA, while European (comparable to the Italian holdings of CAAP) achieve at least 15 times the EBITDA. If CAAP returns to 5x EBITDA, let alone 10x or higher, it would result in a multi-bagger stock price.
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The other problem, of course, is Covid-19. In South America, however, the virus is now waning. Many of the company’s airports have already reopened and Argentina’s main aviation market resumed last week. As traffic figures improve, the CAAP inventory should increase.
Group Aval (AVAL)
We’re sticking to Latin America and have Colombia’s Grupo Aval banking franchise. Aval itself may not be a household name as it is a holding company. However, the company has majority stakes in several of Colombia’s largest banks, including Banco de Bogota, as well as financial services companies, an infrastructure arm, and banking operations across Central America that it bought from GE (NYSE: GE) after the Great Financial Crisis of 2008.
What is the attraction of the AVAL share? There are several positive factors. For one, Aval is majority-owned by Colombia’s richest man, Luis Sarmiento, who is currently valued at a cool $ 9 billion. When the bank is run by the richest person in the country, you are safe from certain political risks. Until then, Colombia had a very secure banking system, with three large banking companies controlling two thirds of the total market. This enables banks to achieve above average credit margins and generate significant fee income.
Aval is also attractive as an income investment. The AVAL share currently achieves a return of almost 7%. Interestingly enough, Aval pays the dividend monthly. Thus, it can serve as an integral part of a monthly income portfolio.
The banking company’s shares fell from $ 9 to $ 3.30 with the pandemic. This made sense at first as Colombia was hit hard by the pandemic and it took a while to open again. However, things have turned the corner.
I am a permanent resident of Colombia and I can tell you that the economy here is showing signs of life after a brutal summer, especially since the airports reopened last month. AVAL stock is now back to $ 4.75 as we see the first signs of optimism. The bank will not recover to pre-Covid levels tomorrow. However, with AVAL stock only making 6x its earnings, there is plenty of room for further uptrend to $ 6 or $ 7 / share in the coming months. In the meantime, shareholders will receive the fat monthly dividend.
At the time of publication, Ian Bezek held long positions in CAAP, ABEV and AVAL stocks.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a junior analyst for Kerrisdale Capital, a New York City-based hedge fund with a volume of $ 300 million. You can reach him on Twitter at @irbezek.
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The “Strong Buy” post-7 penny stocks were first published on InvestorPlace.