Penny stocks have a well-deserved reputation for low quality, high risk, and intense volatility. However, by practicing due diligence, you can discover some hidden gems—inexpensive equities with solid fundamentals and strong growth plans—in the most unexpected places.
Below, you’ll find updates on previously discussed penny stocks, followed by a few new intriguing and inexpensive trade ideas that are still flying under most investors’ radars.
Some of the setups described below may no longer be relevant or intact as of the time you read this article. Please conduct your own due diligence. Many stocks mentioned here were also discussed in the Peter Leeds newsletter. Leeds may own shares in some of the investments mentioned, in which case the newsletter will clearly indicate that fact. Please note that penny stocks are notoriously volatile.
Penny Stock Review
Taseko Mines Limited (TGB)
Copper explorer and developer Taseko Mines Limited (TGB) is down 4% over the past month, despite its announcement that full-year adjusted EBITDA for 2021 had grown 80% since 2020.
The stock’s failure to soar is disappointing to its investors, of course, but not surprising. As written in the initial profile of the stock, “As a long-term hold, copper companies are well placed to benefit from economic growth in China and the [electric vehicle] revolution. Their gains may not happen overnight, though—and that’s why stocks like Taseko Mines are still trading at penny stock prices. Still, readers with patience and an appetite for risk may find a lot to like about [this stock].”
Taseko’s sales reportedly lagged in the fourth quarter due to severe weather conditions in November, but this is likely a one-off to which the market is over-reacting. If copper prices continue to rise and see a breakout amid global scarcity (as many analysts expect), then Taseko shareholders could see their investments grow significantly.
Denison Mines Corp. (DNN)
While uranium miner Denison Mines Corp. (DNN) is still struggling to reach its erstwhile high of $2.14 per share (last seen in November 2021), it witnessed a 5% rise over the past month as well as a 12.73% gain over the past half-year.
There is reason to remain bullish on Denison and the uranium industry in general. Given all the political commitments to eschew the oil and gas industry and embrace alternative sources of power, nuclear energy is poised to benefit.
Denison specifically had 250% revenue growth on a quarter-over-quarter basis and earnings per share (EPS) growth at a stunning 560% for the same period, according to FinViz.com data. Meanwhile, the balance sheet is strong, and the company’s exploration results are looking very promising indeed.
New Stocks to Watch
ARC Document Solutions, Inc. (ARC)
There are a great deal of companies out there providing document copying, scanning, and printing services; helping other companies to archive and store data; or installing imaging equipment in offices and offering ongoing technical help with these products. However, ARC Document Solutions, Inc. (ARC) helps its clients do all of those things at once. It’s truly a one-stop-shop for documents of all kinds.
Now, the company has struggled for a while to achieve significant growth. As the world transitioned to working online, offices no longer needed ARC’s former offerings. So the group cannily shifted gears, setting its sights instead on virtual documents rather than paper ones. It’s been a long and difficult journey for ARC, and the company has had a lot of trouble achieving significant growth and attracting Wall Street’s attention.
ARC’s efforts may finally be bearing fruit, however. The most recent two quarters (the second and third quarters 2021), for instance, recorded EBITDA above $11 million. In addition, gross margin, which tells you how much the company keeps from net sales after taking away the cost of goods sold, is currently at a very healthy 32%.
ARC’s excellent financial ratios are a testament to the company’s good health and high quality, with price to sales (P/S) at 0.54, P/C at 2.61, and price to free cash flow (P/FCF) at 3.90. Another positive factor is the company’s new dividend at $0.05, which is much higher than its peers pay out.
In the past, ARC has needed to escape the stigma of being a “dinosaur” participating in the “dying industry” of reprographics. But now clients are finally taking the group and its line-up of specialized services more seriously, and ARC’s intensive efforts are being reflected in its improved earnings.
ARC’s turnaround is not yet complete—hence its penny stock price. Nevertheless, it appears well on track to achieve much greater profitability and success. Now it’s time for Wall Street and investors to take note, too.
MIND C.T.I. Ltd. (MNDO)
Israeli software firm MIND C.T.I. Ltd. (MNDO) describes itself as a leader in the “real-time billings, customer care and unified communication analytics” space. With over 20 years in the business to its name and counting The Walt Disney Company (DIS), McDonald’s Corporation (MCD), The Coca-Cola Company (KO), and Vodafone Group Public Limited Company (VOD) among its clients, it may surprise some readers that an apparent powerhouse like MIND C.T.I. would still be a penny stock.
In fact, MIND C.T.I. is a testament to how some good-quality firms can go consistently unnoticed by the market, resulting in their stocks being mired below $5 for 10 years or more. In contrast to 99% of other low-priced equities, MIND C.T.I. looks incredibly solid and well placed for the long term. The balance sheet is strong, with total assets at around $31 million easily outweighing total liabilities of approximately $9 million, as of Sept. 30, 2021.
A quick look at MIND C.T.I.’s financials makes its low price all the more staggering. These include a price-to-earnings (P/E) ratio of 10.77, suggesting excellent value for cost; a high dividend of 8.41%; a very strong gross margin of close to 52%; a profit margin of 22%; and consistently positive cash flows.
The company also has long-term relationships (and some long-term contracts, apparently) with a number of its clients, which bring in recurring revenues and help ensure that it will weather any storms. Translation: it may not be too badly hurt by the loss of one or two customers.
So what is the problem here? Why has MIND C.T.I. stock been stuck below $5 price levels for so long? Perhaps it’s because the company hasn’t been able to get the kind of rapid attention-grabbing explosions in sales growth that other software players have. In other words, it’s too “safe”—too boring.
Or maybe the lower prices are, at least in part, because MIND C.T.I. just won’t play ball the way other companies do. It has therefore flown under most people’s radar. Based on the available information, management does not conduct conference calls (or not since 2011), nor does it participate in investment conferences. It also doesn’t seem to put out press releases, except to announce its earnings. Some more attention to investor relations (and even more importantly securing analyst coverage) could do wonders in terms of attracting new investors and breaking out of its price range.