As I’ve said many times before, stocks in the under $5 crowd (or “penny stocks”) should be avoided by risk-adverse investors, since they are inherently risky.
That’s especially true today, with financial markets across the globe staring at a “Black Swan” risk with the novel coronavirus pandemic.
But, if like me, you see the coronavirus contagion being contained within the next few months and the economy rebounding with vigor on the back of tremendous monetary and fiscal stimulus in the second-half of the year, then now is the time to start buying stocks in anticipation of that rebound.
And, if you are a particularly risk-seeking investor, then now is the time to start buying penny stocks, because such risk-on stocks tend to outperform meaningfully when markets are in rally mode.
With that in mind, some of the top penny stocks that deserve your attention in May — and could bounce when markets reverse course — include:
- Plug Power (NASDAQ:PLUG)
- Bed Bath & Beyond (NASDAQ:BBBY)
- Nio (NYSE:NIO)
- The Rubicon Project (NYSE:RUBI)
- Cronos (NASDAQ:CRON)
Penny Stocks Under $5: Plug Power (PLUG)
Stock price as of this writing: $4.30
% Gain in April: 31%
One penny stock which has gone from red-hot to ice-cold in 2020 — and which could get red-hot again in coming months — is hydrogen fuel cell (HFC) maker Plug Power.
The bull thesis at Plug Power is pretty simple. Hydrogen fuel cells have been around for a long time as a clean energy solution. But, they’ve lagged electric batteries in terms of mainstream clean energy adoption, for various reasons ranging from safety concerns to a lack of charging infrastructure.
That’s changing today. Hydrogen fuel cells, which have become increasingly safe over the past few years amid technological improvements, are gaining significant traction in the material handling industry, where these fuel cells are actually better than electric batteries because they deliver more power for longer times at lower costs.
That’s why huge companies like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) are increasingly deploying Plug Power’s HFC forklifts in their warehouses. More companies are quickly joining suit, too, amid increasing pressure on companies to find cost-effective ways to reduce carbon emissions. For example, Plug Power just landed a third big anchor customer in 2020, which many analysts speculate to be Home Depot (NYSE:HD).
Because of all this momentum, PLUG stock initially rose about 80% in 2020 through mid-February. Shares then crashed on coronavirus pandemic concerns, but have since rebounded strongly on the back of strong fourth quarter numbers which included huge billings and profit growth, and underscored that huge growth is here to stay for a lot longer.
So long as big growth sticks around, PLUG stock will keep heading higher.
Bed Bath & Beyond (BBBY)
Stock price as of this writing: $6.25
% Gain in April: 65%
No one is shopping right now, and so shares of Bed Bath & Beyond have plummeted this year.
But, this sell-off is a gross overreaction to near-term pain — and investors are starting to realize that.
Zooming out, the coronavirus outbreak won’t last forever. Strict quarantining in South Korea and China stopped new spread of the virus within two to three months. Most of China has already resumed some semblance of “normal” life. The U.S. is starting to see its coronavirus curve start to similarly flatten out thanks to social distancing measures. This flattening should persist, and economic normalization should start in May.
Thus, Bed Bath & Beyond is looking at one to two really bad quarters. Thanks to the government’s huge $2 trillion stimulus bill, this company should have sufficient resources to weather the storm. Thereafter, the company will resume its turnaround plan based on cost-cutting, store upgrades and closures, e-commerce build-out, and omni-channel development.
Those turnaround initiatives will gain traction in the back-half of 2020, and drive sales stabilization and margin improvement, which should power BBBY stock higher.
Investors are starting to believe in this turnaround thesis. BBBY stock is up more than 60% in April. This big rally will continue because of strong earnings catalysts in the second-half of 2020, and because the stock remains very cheap.
Stock price as of this writing: $3.40
% Gain in April: 30%
Chinese premium electric vehicle (EV) maker Nio has been on a roller coaster ride over the past year and a half. This roller coaster ride increasingly looks like about to make a big move higher soon.
Of course, NIO isn’t selling a lot of cars right now. China’s economy essentially ground to a halt in January and February. Consumers weren’t going outside, let alone buying cars. It should be no surprise, then, that Nio management guided for first quarter deliveries to be down more than 50% quarter-over-quarter.
But, before coronavirus hit NIO, this company was on a tear. In the fourth quarter, deliveries rose more than 70% sequentially, powered by rising ES6 demand (it’s the number one selling electric SUV in China) and rebounding ES8 demand. Revenues rose 60% sequentially, paced by largely stable average selling prices. Gross margins inched up from the third quarter. So did vehicle margins. Adjusted net loss narrowed versus the same quarter a year ago, and the balance sheet scored some big funding from Hefei’s city government.
All of these trends should resume once life gets back to normal in China.
Indeed, this is already happening. China has effectively stopped the spread of coronavirus in its country. Chinese consumers are back to work. Restaurants and shops are open. Consumers are spending again. And NIO reported that its delivery volumes more than doubled month-over-month in March.
This rebound in China’s economy and NIO’s delivery trends will continue for the next few quarters. As it does, NIO stock will soar higher.
The Rubicon Project (RUBI)
Stock price as of this writing: $7.25
% Gain in April: 29%
Small-cap Rubicon Project has plunged into penny stock territory amid the coronavirus outbreak. This plunge seems overdone, and the long-term bull thesis at current levels is quite mouth-watering.
The Rubicon Project, which recently merged with Telaria, is an ad tech company that runs something called a video management platform, or VMP. The purpose of the VMP is to help streaming platforms maximize the value of their video ad inventory.
Think Hulu. They have a bunch of ad inventory. They need to maximize it. Telaria and The Rubicon Project help them do that, by leveraging user and brand analytics to always put the right ad in front of the right customer, thereby increasing ad relevance and conversion.
The Rubicon Project also does this across all ad formats. Not just connected TV. But audio, display, and mobile and desktop video, too.
Essentially, The Rubicon Project is a targeted, sell-side ad platform particularly levered towards connected TV and other digital video ad spending trends.
Long term, this company has huge potential. In 2019, marketers spent about $71 billion on linear TV ads. Only $3.8 billion were spent on streaming TV ads. But, consumers are shifting their engagement from linear to streaming TV. Ad dollars will follow suit over the next decade, implying an inflow of billions of dollars into the streaming TV ad space within the next few years.
Because of these secular tailwinds, this company has a huge opportunity to drive explosive revenue growth for many years to come, the likes of which should power RUBI stock far higher than where it trades today.
Stock price as of this writing: $6
% Gain in April: 14%
Canadian cannabis producer Cronos has plunged into penny stock territory in early 2020 on fears that cannabis consumption will come to a screeching halt as the global economy shuts down.
That’s probably true. While cannabis stores have been labeled as “essential” businesses is certain states and territories, the general idea that cannabis sales will be down over the next few weeks is the right one.
But, Cronos has the balance sheet to manage this slowdown. Thanks to a big investment from Altria (NYSE:MO), Cronos has $1.5 billion in cash on its balance sheet, the sum of which should enable the company to simply absorb any operating losses during March and April without risking insolvency.
Thereafter, once the virus fades and the economy normalizes, Cronos’ growth trends will meaningfully improve. Demand trends will improve on the back of aggressive retail store openings and the launch of new vapes and edibles. Gross margin trends will improve thanks to production cuts from the industry’s biggest suppliers. Operating margins will improve thanks to cost-cutting efforts. Operating losses will narrow as improving demand and margin trends converge with one another.
Net net, in the back-half of 2020, Cronos’ revenues will move higher, margins will expand, and net losses will narrow. That’s a recipe for success which should boost CRON stock out of penny stock territory.