The S&P 500 is up 3.6% this week, marking another swing in a six-week run of volatile trading. At 2,968, the index is still down 8% year-to-date, but is holding at resistance levels indicative of a true rally. Investor confidence is high, and traders are clearly willing to buy in right now.
Reviewing the situation for investment research firm CFRA, analyst Sam Stovall sees the current market as the prelude to all-time highs: “In other bear markets going back to 1929, and the average 13 month advance was 50%.” In his view, short-term losses will be transitory, and, “Wall Street is focusing more on what will be beyond the next 6 to 9 months rather than what could be happening in the next 2 to 3 months.”
The rally has raised a question, though – where to invest?
To find names that can deliver solid returns and come with a bargain price tag, these investors will often turn to penny stocks, or those trading for less than $5 per share.
Sure, there could be a very good reason these tickers are so affordable, but should there be even minor share price appreciation, massive percentage gains could materialize, along with hefty profits for investors.
Bearing this in mind, we used TipRanks database to pinpoint three Buy-rated penny stocks that have earned a thumbs up from members of the analyst community. Not to mention each boasts substantial upside potential of over 70%.
First on our list is a micro-cap fintech, Mogo. This company offers customers options for financial management, including credit score viewing, identity fraud protection, mortgage services, personal loans, and prepaid Visa cards. Mogo uses direct contact with customers to bypass big banks and hidden fees.
Like many small companies, Mogo has had a hard time in dealing with the economic effects of the coronavirus epidemic in Q1. MOGO shares are down 68% in the past three months. Yet, B Riley FBR, analyst Scott Buck sees Mogo’s membership growth as the key to the company’s forward prospects.
“While growth initiatives are likely to slow in the near term, we believe managingthe business through the current headwinds will be enough to drive meaningful upside to MOGO shares from current levels. We believe positive cash flow should serve as a bridge for investors as we expect growth to move to the forefront in late 2020 and into 2021 [...] While these headwinds are likely to persist near term, we believe Mogo is still positioned to be a long-term winner in the consumer finance sector," Buck noted.
Buck put a $4 price target on MOGO shares, supporting his Buy rating and suggesting a whopping 371% upside potential for the coming year.
Wall Street is in agreement that MOGO’s doldrums are temporary. The stock’s three recent Buy ratings make the analyst consensus a unanimous Strong Buy, while the $3.01 average price target implies a robust 255% upside potential from the 85-cent current trading price.
Next on our list is Eagle Bulk Shipping, a player in international oceanic trade. Eagle’s fleet of dry bulk cargo carriers move a range of products around the world, including cement, coal, fertilizer, grains, and iron ore. The company boasts a market cap of $137 million, and a fleet of 50 Ultramax and Supramax cargo vessels.
After badly missing the earnings forecast in Q4, Eagle surpassed the Q1 estimates by 67%. The strong performance came even as quarterly revenue fell year-over-year and the COVID-19 pandemic shut down economic activity around the globe. EGLE reported a net loss of 5 cents, against the 15 cents expected. Total revenue came in at $47.8 million, a modest 1.4% above the forecast.
Covering EGLE for Evercore ISI, analyst Jonathan Chappell writes, “Lower interest costs amid plummeting LIBOR rates and lower G&A expenses should help offset some of the top-line headwinds for 2Q, as well as the remainder of this year [...] Management is confident that continued execution of this track record along with a cyclical recovery in the dry bulk market will enable the shares to begin to reflect this value add. We agree..”
Chappell rates EGLE shares an Outperform (i.e. Buy), and while he has lowered his price target from $3.50 to $3.00, the new target still indicates a potential 68% upside for the year.
The Wall Street analyst corps is actually slightly more bullish here than Chappell allows. EGLE shares have a Strong Buy analyst consensus rating, based on 3 Buys and 1 Hold, and an average price target of $4.13 suggests a possible 131% one-year upside potential.
The last penny stock on our list PowerFleet, a wireless asset management company. PowerFleet’s products offer connectivity for industrial trucks, rental vehicles, and other transport assets. Based in New Jersey, the company has a $128 million market cap and a worldwide customer base. PowerFleets’s products and workforce have been recognized by the US Department of Homeland Security as essential for meeting the challenges presented by the COVID-19 epidemic.
Being classed as an essential service gave the company a boost in Q1, and PowerFleet met expectations for quarterly earnings. The company reported over $30 million in total revenue, up 126% year-over-year, and generated $2.8 million in operating cash flow. PowerFleet finished the first quarter with plenty of liquidity, reporting $16.6 million in cash and cash equivalents, as part of $24.1 million in working capital. Share prices ticked up modestly after the earnings release.
Reviewing the company for Canaccord, 5-star analyst Michael Walkley set an $8 price target on the stock, showing his confidence in a solid 79% upside in the next 12 months, and backing his Buy rating.
In his comments on PWFL, Walkley wrote, “For fleet management, we believe PowerFleet is one of the only true end-to-end solutions in the market spanning in-cab, refrigerated trailers, dry vans, and containers… we believe the combined PowerFleet has a strong portfolio of products on a leading platform to grow its market share – as evidenced by its strong global customers including Jungheinrich, Nestle, Walmart, Michelin, Caterpillar and others.”
The analyst consensus on PWFL shares is a Strong Buy; the stock has 5 recent reviews, including 4 Buys and a single Hold. The shares are selling for $4.82, and the average price target of $7.40 suggests it has room for 53% upside growth in 2020.
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