Tricks for the stock market
Investing in penny stocks always involves accepting a high level of risk, and this tends to be even more the case when the stock market is volatile or uncertain. Penny stock investing is not for the faint of heart, but rather only for investors with a healthy dose of risk tolerance.
The overall market is uncertain as it faces the prospect of an impending interest rate hike going into 2016, and substantial gains may be difficult to come by investing in larger companies, many of which have already attained record highs in recent years. Penny stocks offer the opportunity to invest in largely unrealized potential, as with a small biotech firm still in the research and development phase. The risk, of course, is that the potential may remain unrealized. However, investing in small companies that eventually do break through to become hugely profitable firms offers investors the chance at returns on investment (ROI) that usually can’t be found in more mature stocks.
To increase the odds of making a good penny stock investment, investors are wise to search out stocks operating in market sectors evidencing strong growth and to identify those companies in the healthiest financial positions.
1) Curis Inc.
Curis Inc. (NASDAQ: CRIS) is a small biotechnology firm engaged in developing therapeutic drugs for treating cancer and neurological and dermatological diseases. The company pursues research both in-house and through strategic joint ventures with other biotech or pharmaceutical firms, and has several drug candidates in research and development. The company’s most advanced drug project is a small molecule inhibitor designated as CUDC-907. CUDC-907 has reached the stage of completing the dose escalation segment of phase 1 clinical studies.
The company has substantially increased its investment in research and development (R&D), from $3.3 million in 2014 to $5.9 million in 2015. Curis has not reached the point of profitability, but despite its level of R&D investment, it has a healthy debt-to-equity (D/E) ratio of 0.27.
The company suffered a setback in revenue from $4.8 million in the second quarter of 2014 to $2.1 million in the second quarter of 2015, largely due to a license fee decrease resulting from a $3 million payment the company received in 2014.
The company’s stock price tumbled throughout most of 2014, but it bottomed out around $1.20 per share near the end of the year. In 2015, the company’s stock rose sharply to $3.75 in the first part of the year before retracing to near the $2 price level. As of November, the share price is around $2.50, which represents an increase of roughly 70% for the year. The consensus estimate for the stock price in 2016 is approximately $3.10 per share.
2) First Majestic Silver
A stock to consider in light of the fact that many market analysts believe precious metals prices have bottomed out in 2015 is First Majestic Silver (NYSE: AG). Headquartered in Vancouver, Canada, First Majestic is in the business of acquisition or exploration, development and production of silver mines in Mexico.
The company owns five silver mines that are already producing and has two mining projects in the exploration and development phase. The company estimates final 2015 production figures to be in the neighborhood of 12.5 million ounces.
The argument for investing in First Majestic is based primarily on a projection for rising silver prices and secondly on the company’s proven ability to reduce production costs. Managing production costs is a very important factor in making mining operations profitable, and First Majestic has shown its ability to do this by reducing per ounce production costs approximately 20%, from $18.18 in 2014 to $14.49 in 2015. Additionally, the company has maintained an extremely low D/E ratio of just 0.02.
The company’s stock price, trading at $3.11 per share as of November 2015, bottomed around the $2.80 level three times in 2015. The 2016 consensus estimate for First Majestic, which traded as high as $25 a share in 2011, is $3.80 to $4.
3) Avon Products Inc.
Avon Products Inc. (NYSE: AVP) is a leading manufacturer of beauty products. In addition to cosmetics and fragrances, the company markets jewelry, apparel, home decorative items, nutritional products and housewares. Avon operates in more than 60 countries worldwide.
The company, and its stock price, have suffered a decline in recent years, falling all the way from nearly $30 a share down to $2.50 a share. As of November 2015, the stock price stands at $2.72. Avon might be worth investing in simply because of its extremely low share price, given the fact that the company has a long, established history and strong brand name recognition, and it operates over such a large global marketplace. Even at its current low share price, the company still has a market cap of over $1 billion. The company also offers a very generous dividend yield of 9.02%.
4) Genetic Technologies Ltd.
Australia-based Genetic Technologies Ltd. (NASDAQ: GENE) was the first company to obtain patents giving it the intellectual property rights to specific uses of non-coding DNA for the purpose of genetic analysis. The company manufactures testing and assessment tools for managing women’s health, specifically to improve techniques for breast cancer screening.
The company’s current lead product is the BREVAGgenplus test, an improvement over its already successful test product, BREVAGen, which was launched through its U.S. subsidiary company, Phenogen Sciences Inc. BREVAGenplus enables substantially expanded testing for clinical risk factors and genetic markers correlated with non-hereditary breast cancer.
Genetic Technologies has received a boost from recent breast cancer screening guideline changes by the American Cancer Society and from the completion of additional validation studies of BREVAGenplus. The release of those study findings, scheduled for the first quarter of 2016, could propel the stock significantly higher.
At $2.41 a share, the company’s stock price has increased more than 30% in 2015. With an all-time high price of over $50 per share, the stock potentially has a long way to run on the upside. The company has an attractively low price-to-book (P/B) ratio of 1.74.
5) Groupon Inc.
Groupon Inc. (NASDAQ: GRPN) has been in relative freefall since its 2011 initial public offering (IPO) at $26 per share. Nonetheless, the company’s earnings per share (EPS) have been on a steady climb recently, and the projected EPS growth for 2016 is 22.5%.
Groupon is an online discount website that serves as a marketing tool for businesses by offering a variety of discounts on goods and services. The company has expanded rapidly since it was founded as a local operation in Chicago in 2008, and it currently operates in more than 500 local markets worldwide.
Although the company missed 2015 third quarter revenue estimates, it beat third quarter EPS estimates impressively, posting a gain of 0.02 EPS against estimates of a 0.04 EPS loss.
The last time the company’s stock reached this low price level, in 2012, it rebounded to over $12 a share in less than a year.