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Many of the penny stocks on this list have been beaten down despite healthy fundamentals
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During the correction of March 2020, AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME) were both penny stocks. Then retail investors jumped on board and took their share prices to levels neither had ever seen.
Investors who bought their shares under $5 in 2020 and were now sitting on major unrealized gains in 2021, began to think they were the new superstars of portfolio management.
Neither AMC nor GameStop brought any fundamentals to the table — AMC has too much debt and GameStop has way too many stores — yet investors were buying their shares by the boatload.
One of the best examples of a penny stock that’s been worth owning in years gone by is Sirius XM Holdings (NASDAQ:SIRI), the satellite radio home of Howard Stern, easily one of the highest-paid radio broadcasters in America.
Since 2000, SIRI has traded under $5 for a significant amount of time. You could buy it under $5 for the better part of eight years, starting in the financial crises of 2008 and lasting until the beginning of 2017. However, due to the number of shares outstanding, it remained a mid-cap or large-cap stock despite its mid-to-the-low-single-digit share price.
Fundamentals, whether a stock is trading for $3 or $300, still matters. These seven penny stocks have them.
Salem Media is America’s leading Christian broadcaster. It currently trades at $3.04 as I write this and possesses a market capitalization of $88 million, putting it squarely in the micro-cap territory.
The company owns and operates more than 115 radio stations, including over 70 in the country’s top 25 media markets. Salem Media’s other businesses include Christian and Conservative websites. It even provides financial advice through Eagle Financial Publications.
In the company’s Q3 2021 results, it reported sales of $66.0 million, 8.8% higher than a year earlier. On the bottom line, Salem had adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $10.83 million, 12.5% higher than Q3 2020.
An interesting line item in its balance sheet is the company’s property and equipment assets. At the end of September, they were carried on the books at $78.4 million. Its land holdings accounted for $27.0 million or 34% of its property and equipment assets.
On July 23, 2021, Salem sold 34 acres of land in Lewisville, Tx, for $12.1 million cash. It generated a pre-tax gain of $10.5 million on the sale. It retained a small sliver of the property to keep radio station KSKY-AM from moving. On Aug. 31, 2021, it agreed to sell 77 acres in Tampa, Fla., for $13.5 million.
That’s $25.6 million in proceeds, which works out to 94 cents a share, or 29% of its share price. Assuming the remaining $27 million in landholdings sell for double that amount, we’re talking about pre-tax gains of $27 million or almost $1 per share.
Back out $1.94 in pre-tax gains and there’s not much left in the share price to account for the operating businesses. That’s value 101.
Charles & Colvard manufactures fine jewelry from lab-created moissanite. It currently trades at $2.46 as I write this and possesses a market capitalization of $77 million.
Based in North Carolina, the company dates back to 1995. In 2020, Charles & Colvard announced that it would get into the diamond market with the launch of Caydia, a premium brand of lab-grown diamonds.
A few highlights from its Q1 2022 results include a 30% increase YOY in revenue to $10.3 million, a 20% increase in online sales (52% of overall sales), and an 8.6% increase in operating profits. It had no debt and $19.2 million in cash, cash equivalents, and restricted cash as of Sep. 30,2021.
The company’s trailing 12-month (TTM) free cash flow (FCF) through the end of the first quarter is $4.2 million and its FCF yield is 5.5%. I consider anything yielding between 4-8% to be delivering growth at a reasonable price.
In late September, the company announced it would build its first Charles & Colvard Signature Showroom at its head office in North Carolina. The move allows it to showcase its Signature Collection, Caydia lab-grown diamonds, and its other premium jewelry.
Up significantly from its March 2020 lows, CTHR’s late-2021 swoon provides investors with an opportunity to buy on the dip.
Orion Energy Systems manufactures energy-efficient light-emitting diode (LED) lighting systems for major corporations across North America.
It also provides turnkey installation services for its systems. It currently trades at $3.99 as I write this and possesses a market capitalization of $132 million.
Over the past 52 weeks, OESX stock has lost more than 64% of its value. So, the big question to answer is why this correction took place.
On Jan. 18, the company revised its fiscal 2022 revenue $20 million lower to $130 million from $150 million previously. Some of its larger lighting projects have been delayed due to its customer issues with Covid-19. It will still deliver 11% growth over fiscal 2021. What doesn’t get counted in 2022 will push forward to 2023.
That’s something to look forward to.
In the meantime, from where I sit, its revenues, gross margins, EBITDA, and liquidity all look healthy heading into the fourth quarter and fiscal 2023.
On Jan. 5, Orion announced it would acquire Stay-Lite Lighting, a nationwide lighting and electrical service provider.
“The acquisition of Stay-Lite Lighting into the Orion portfolio adds high-profile retail customers, self-performing capabilities in 15 states and a nationwide network of service coverage,” said Mike Altschaefl, Orion CEO and Board Chair.
“This will substantially benefit our current and future customer base as it immediately expands our service and maintenance network, capabilities and offering while adding 50 years of lighting industry experience and technical knowledge.”
Orion could be a real diamond in the rough.
WidePoint provides trusted mobility management (TM2) solutions such as identity and access management, consulting, secure hosting solutions, and multi-factor authentication primarily to the federal government as well as state and local governments and commercial enterprises. These organizations hire the company to ensure their employees’ mobile devices are secure.
It currently trades at $3.88 as I write this and possesses a market capitalization of $36 million. Its stock is down 69% over the past 52 weeks.
A major reason for the company’s stock losing altitude over the past year has to do with its 2020 Census project with the U.S. Department of Commerce ending.
For example, its carrier services revenue through the first three quarters of 2021 fell 69% to $36.3 million, from $118.1 million a year earlier. Meanwhile, its managed services revenue also declined in the period by 26% to $26.5 million. Overall revenues fell 59% to $62.9 million.
However, despite the steep decline in year-over-year revenue, its operating income through the third quarter was still positive at $1.4 million, 44% less than a year earlier. A big reason for hanging in there has to do with a 940 basis point increase in its gross margin.
With no debt, $18 million in cash, 95% recurring revenue, and 17 consecutive quarters of positive EBITDA, the chances are good that WidePoint will work itself out of its current funk.
Under $4, this is one of the penny stocks that could be a steal.
New York Mortgage Trust is a real estate investment trust (REIT) that invests in single-family and multi-family mortgage-related assets. It currently trades at $3.70 as I write this and possesses a market capitalization of $1.4 billion.
If you look at the REIT’s chart, you’ll see that its share price dropped from well over $6 in February 2020 to a $1 low during the March 2020 correction. It’s slowly worked its way back to $3-$4.
You’re not going to get rich owning NYMT. However, if you’re an income investor first, it’s going to provide you with decent cash flow. Its distributions currently yield over 10%.
Over the past four quarters, it’s grown its net interest margin — the difference between what it receives in interest on its loans versus what those loans cost the REIT — by 107 basis points to 3.25% in Q3 2021 from 2.18% in Q3 2020.
At the end of September, its investment portfolio was $3.5 billion, with 83% of it from single-family project loans. Its yield on its average interest-earning assets was 6.39% in the third quarter, up from 5.51% a year earlier.
In May 2020, in response to Covid-19, the REIT suspended its quarterly dividend. They resumed shortly after that at five cents a share. In Q3 2020, the dividend was 7.5 cents. The final quarter of 2020 paid out 10 cents per share. It remains at this reasonable payout.
This is one of the penny stocks that is locked and loaded for income.
BGC Partners is a global brokerage and financial technology company that specializes in fixed income debt instruments and interest rate and credit derivatives.
It was spun off from Cantor Fitzgerald in 2004. It currently trades at $4.26 and possesses a market capitalization of $1.6 billion.
While we’re not talking about a major growth company — its Q3 2021 revenue and adjusted EBITDA grew by 4.3% and 3.3%, respectively — it is working to transform into a higher margin business. Over the past four quarters, it’s grown its pre-tax adjusted earnings margin by 160 basis points to 18.2%.
The company’s Fenics Go electronic trading platform — combining voice trading with electronic systems to provide traders with the execution needed for large block trades — is providing BGC with the growth to increase margins.
In Q3 2021, Fenics’ revenue grew 19% YOY to $95.0 million. Since 2014, Fenics’ revenues have grown from $101 million to $384 million in TTM. This revenue account for 21% overall, up from 9% in 2014.
In the first nine months of 2021, BGC’s operating cash flow grew 119.3% to $306.1 million from $139.6 million a year earlier. On an annualized basis, its market cap is less than 4x operating cash.
Genasys is a San Diego-based provider of emergency management software and hardware to alert, inform and protect the public. It currently trades at $3.94 and possesses a market capitalization of $139 million.
The company entered the critical communications arena after the October 2000 attack of the USS Cole, which killed 17 U.S. sailors and injured many others. Today, it has seven offices worldwide and 160 employees working with governments and companies globally to keep their people safe.
It generates stable growth. Over the past five years, it had compound annual revenue growth of 23%, moving from $16.4 million in fiscal 2016 (Sep. 30 year-end) to $47.0 million in fiscal 2021.
In June 2021, Genasys acquired Zonehaven, a San-Francisco-based provider of software-as-a-service (SaaS) solutions for emergency evacuations, for $24 million. Zonehaven only launched two years earlier. It hooked up with Genasys through a referral from Alameda County (California) fire chiefs.
Inc. asked Zonehaven founders Charlie Crocker and Robert Shear about selling after two years rather than taking venture capital money and scaling the business:
“There was calculus in that. Genasys is publicly traded, so they’re more liquid than any VC firm. Or we could have been bought by another startup or a Series B or Series C company, and you still have no liquidity,” the founders stated in August 2021. “This gave our employees an opportunity to get paid some and get stock in something that is ultimately tradeable. And I think by us joining that company, we will add value to that stock over time.”
Of the seven, Genasys is probably the most interesting on my list. Down 48% over the past year, now is an excellent time to buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
Article printed from InvestorPlace Media, https://investorplace.com/2022/01/7-penny-stocks-to-pick-up-for-profit-in-q1/.
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