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The last week of February saw the Dow Jones Industrial Average plunging to its third-worst drop in recorded history on the back of worsening coronavirus fears. As I stated in my most recent videos on the Peter Leeds YouTube channel, I believe that we have never been more vulnerable to a massive Minsky moment: a sudden market collapse that follows a long period of bullish activity.
If you’ve been following my “Penny Stocks to Watch” and “Penny Stocks to Buy Using Technical Analysis” columns for Investopedia over the past year, then you’ll likely already know that I’ve been expecting such a collapse to occur for a while now – even before coronavirus made its appearance on the world stage.
In my opinion, many of the stocks that have recorded sky-high climbs in value in the past decade will soon come crashing precipitously down, including those of the large caps and mega-cap corporations. Indeed, some of them already have.
Consequently, I sold off all of my remaining blue-chip stocks recently and am now around 80% invested in precious metals stocks, which I expect to explode in value over the next five years. I also remain on the lookout for great bargains in the penny stock world and continue to share them with readers of my newsletter and, of course, you.
Below, you’ll find updates on a few of the stocks I’ve featured in this column, as well as some interesting new equities with substantial untapped potential. These are priced to move, in my view, and in this roller-coaster economy, you might want to think fast and reposition your investments accordingly.
First, Some Updates …
Due to the time constraints inherent to technical analysis, some of the patterns, signals, and set-ups I describe below may no longer be relevant or intact as of the time you read this article. Please ensure you conduct your due diligence when looking at the trading charts and data for the following stocks.
Many of the stocks mentioned here were also profiled, traded, or otherwise discussed in the Peter Leeds Newsletter. Peter may furthermore own shares in some of the investments mentioned, in which case that fact will be clearly indicated. (See below for an additional disclaimer regarding penny stocks.)
Smith Micro Software, Inc. (SMSI)
Smith Micro Software, Inc. (SMSI) has been among my favorite “Penny Stocks to Watch” of the year 2020. I first included it on my list in January, shortly before the stock took a sharp turn northward to peak at $7.14 midway through February.
And then the last few days of February happened, sending virtually all stocks down on the back of fears that the coronavirus would hurt the global economy. The end result is that Smith Micro Software stock is currently sitting a few cents under the $5 mark. However, as of the very tail end of February, the stock already seemed to be making a nice recovery.
It isn’t surprising, really, that Smith Micro stock could bounce back so readily. Its balance sheet is sturdy (with quick and current ratios at 7.00 and zero debt/equity), its gross margin is a fantastic 90%, and as of the last set of results, the group’s sales were up more than 80% on a quarterly basis.
Smith Micro will report its next set of results on March 5. I wouldn’t be surprised if the coronavirus panic continues to dampen any enthusiasm around the stock. But I would also be surprised if Smith Micro Software weren’t still able to come out a winner over the medium to long term once the panic dies down.
Grupo Supervielle S.A. (SUPV)
Grupo Supervielle S.A. (SUPV) was one of my “Penny Stocks to Watch” from November 2019, and truth be told, it has had a pretty miserable run over the course of 2020 so far. Fears around another debt crisis and election of a government that isn’t so-called “market-friendly” have dogged this Argentinean bank at every step, despite some great financials.
These include average five-year revenue growth at 60%, a P/E ratio of 4.60, a P/S ratio of 0.54, and a P/C ratio of 0.68. In the last set of results for the fourth quarter of 2019, revenue was up 39% on a year-over-year basis, and the cost of risk declined by 320 basis points. But the market couldn’t give poor Supervielle a break, and the stock is trading at a mere $2.75.
Still, I’m not sure if I’d let go of Grupo Supervielle stock just yet. In my opinion, shareholders with a lot of patience and risk tolerance to spare may find that the high risk here is paired with an equally large reward … that is, if the news out of Argentina can turn even slightly more favorable in the year ahead.
Rekor Systems, Inc. (REKR)
It’s rare that a month will go by without something interesting happening to Rekor Systems, Inc. (REKR) stock – and that’s why I keep talking about it! As of only a week or so ago, it looked to be re-ascending the charts to its previous highs of $4.75 and above, which it had last reached back in the summer of 2019.
Then, of course, like Smith Micro Software (see above) and 90% of the equities out there, Rekor Systems was hit hard by the monster sell-off that rounded off the last week of February.
A plethora of new hires and client wins over the past month, however, underpin my ongoing optimism in Rekor’s price trajectory. It certainly isn’t immune to the fluctuations of the stock market, but I believe that it has the wherewithal (and plenty of strong revenue growth) to withstand the current volatility and recession ahead.
… And a Few New Ones
Penny stocks are notoriously volatile.
Eros International Plc (EROS)
My team and I included Bollywood entertainment company Eros International Plc (EROS) in the Peter Leeds newsletter’s Hot List in the summer of 2019 – and boy, was it a nail-biter. Not long after we selected this controversial, high-risk stock, prices fell off a cliff to the $1 zone.
Eros stock has continued to see a bumpy ride since then. But three weeks into January 2020, it suddenly soared to $4.77 for a 53% gain from its starting price. This is because management announced two exciting new partnerships with companies to broadcast its massive library of Bollywood film and television in Gulf Cooperation Council countries (including Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) and in China.
Even though the excitement of the announcements has worn off for investors and shares are back down to $2.45, I’m very optimistic about Eros International’s prospects. A recessionary environment is, after all, likely to keep people indoors and close to their various forms of streaming entertainment. And coronavirus should likewise keep viewers close to home.
Add to that a forward P/E ratio of 7.78 and its extensive portfolio of Bollywood properties, and I think Eros stock is a great deal at its current price.
Fortuna Silver Mines Inc. (FSM)
I’ve been loving the precious metals miners for some time now. One of my current faves, Fortuna Silver Mines Inc. (FSM), has done quite well over the past few months, gaining 25% on a quarterly basis – even if prices are now back down to approximately where they started.
In my opinion, Fortuna Silver Mines is deeply undervalued (and Wall Street seems to agree, giving this stock a target price of $9.00 – that’s 157% upside from its current cost). However, we’ll likely have to wait for a sector-wide improvement in silver before the stock starts really seeing some progress.
If you’re a patient investor, however, and can withstand the volatility inherent to the precious metals penny stocks, then you’re going to want to take a closer look at this one. The one-two punch of the coronavirus followed by a recession will make a flight to safety to gold and silver miners almost inevitable, in my opinion.
Republic First Bancorp, Inc. (FRBK)
Republic First Bancorp, Inc. (FRBK) is a holding company for Republic First Bank, a chain of banks in the northeastern United States with some jaw-dropping numbers at its disposal. Five-year earnings per share (EPS) growth is a dazzling 25%. Sales growth over the past five years has averaged 20%.
Keep in mind that this is in a staid, mature industry that is no longer considered a growth market. As of the fourth quarter of 2019, Republic First’s total deposits increased by $606 million, or 25%, to $3.0 billion as of Dec. 31, 2019, compared to $2.4 billion as of Dec. 31, 2018. Moreover, since banking industry legend Vernon Hill joined the board of Republic First, the bank’s assets have surged from $900 million to $3.3 billion.
As Mr. Hill told a reporter, he’s moving fast. Really fast. Republic First Bancorp’s debt/equity ratios are low at 0.05, while cash/share is 3.36, with a stellar price/cash ratio of 0.96. EPS next year are set to grow a gargantuan 367%. The operating margin is an amazing 73%, and the return on income (ROI) is 28%.
So what’s not to love? Investors haven’t always been enthused about Mr. Hill’s multiple run-ins with the Securities and Exchange Commission (SEC), and there are concerns that the bank’s expansion has been too quick. A low interest rate environment hasn’t helped, of course.
I have no doubt that this is a speculative play, given the past two quarters of net income losses. But it’s also an intensely exciting one, as is usually the case when Mr. Hill gets involved. If net income losses grow much worse, however, I’d probably abandon ship.
The Bottom Line
Now more than ever is the time to do as much research as possible into the stocks you’re interested in purchasing. Due diligence will be key to strengthening your portfolio over the years ahead and emerging from the recession unscathed or with an even sturdier set of investments. Resources like Investopedia and the Peter Leeds newsletter just may be your best bet when it comes to finding the information that matters about a stock.
Peter Leeds is the author of several books, including the international bestseller, “Penny Stocks for Dummies.” He and his team also issue a newsletter devoted exclusively to penny stock picks and analysis, as well as a popular YouTube channel — PeterLeedsPennyStock.
Penny stocks are volatile and can generate catastrophic losses. Price levels in this article are hypothetical and do not represent buy recommendations or investment advice. Keep in mind that it’s your responsibility to make trading decisions through your own skilled analysis and risk management.
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