I believe that diversification is an excellent strategy to protect oneself when investing. One important aspect of that is risk tolerance. Simply chasing the safest, most risk-avoidant investments is going to lead to one thing: low returns. That’s where penny stocks come in with higher risks, but potential for higher rewards.
I absolutely suggest investors understand and consider exchange-traded funds (ETFs) and other lower-risk investment vehicles. But it’s also necessary to include a degree of risk in a portfolio. Penny stocks are a relatively inexpensive way to approach this strategy.
A few weeks ago, I wrote an article about penny stocks listed on the Nasdaq exchange. Those shares are much more vetted than over-the-counter (OTC) listings.
The same is true of the New York Stock Exchange (NYSE), which is where all of the penny stocks I’ll write about today are listed. Both the Nasdaq and NYSE are centralized, and participants must file periodic audited financial reports. Thus, it is possible to verify their claims regarding their business performance. OTC stocks, on the other hand, are much easier to manipulate.
Here’s another reason to be cautious with OTC penny stocks, according to Kiplinger:
“The major exchanges also have listing requirements; OTC stocks don’t. For example, a company must have at least 400 shareholders and a market value of at least $40 million to get a listing on the New York Stock Exchange. The OTC market makes no such requirements.”
With that in mind, let’s look at these seven NYSE-listed penny stocks that look particularly promising:
- Gerdau (NYSE:GGB)
- Ion Geophysical Corp. (NYSE:IO)
- Team Inc. (NYSE:TISI)
- Regis Corp. (NYSE:RGS)
- Invacare Corp. (NYSE:IVC)
- Arcos Dorados Holdings (NYSE:ARCO)
- Exterran Corp. (NYSE:EXTN)
Penny Stocks: Gerdau (GGB)GGB) office sign in Sao Paolo, Brazil." width="300" height="169">
Source: casa.da.photo / Shutterstock.com
Gerdau is a Brazilian steel producer with operations throughout Brazil, North America and South Africa. It produces products like rebar, rolled steel, structural steel and slab steel.
There are a few reasons to be interested in steel stocks right now. Probably the most important is that in the United States, there’s a massive push to revitalize infrastructure.
Earlier this month, President Joe Biden revealed his plan to spend $2 trillion to rebuild crumbling roads and bridges across the U.S. According to President Biden, that spending will lead to 20,000 miles of roads and 10,000 bridges being fixed. That of course requires steel, which bodes well for Gerdau.
In the second quarter, Gerdau was a strong performer. The company saw revenue increase by 119% on a year-over-year (YOY) basis in the quarter. It also saw gross profit rise by a whopping 654%.
The company will release Q3 results in late October. No one knows what the results will be, but analysts are keen on the company currently.
GGB stock carries a strong buy rating and lots of upside based on target prices. It currently trades for about $5, the upper limit of a penny stock, but analysts’ consensus target price is $7.93.
Given the tailwinds inherent in Biden’s infrastructure spending, it’s easy to see why a growing company like Gerdau carries more than 50% upside now.
Ion Geophysical Corp. (IO)
Ion Geophysical is a Houston Exploration and Production (E&P) firm in the oil industry. One interesting aspect of the company compared to other oil stocks is that it has lower fixed costs. Ion is a data firm, so it doesn’t have to pay for things like mining rigs, pipelines, platforms and all of the other high-cost assets associated with oil drilling.
Therefore, the narrative underpinning an IO stock investment is that it’s a play at low-cost, well-regarded oil analytics firm.
In fact, Ion Geophysical is covered by three analysts, all of whom consider it to be buy worthy. Their price predictions alone make IO shares very attractive. IO stock currently costs $1.41, but its average target price is three times higher at $4.57. In other words, analysts think it can return 224% to investors right now.
Ostensibly, oil producers should be very interested in Ion Geophysical’s services right now as oil prices surge, jumping above $85 per barrel.
The company was hit hard by the pandemic. In Q1 2020, revenue hit $56.4 million, then declined to $14 million in Q1 2021. Even so, the company remained profitable due to its asset-light nature.
Penny Stocks: Team Inc. (TISI)
Like Ion Geophysical, Team Inc. is a company that deals with analytics and serves the oil industry. Basically, the company deals with asset assurance and optimization. That means it inspects and repairs assets using analytically enabled services.
But unlike Ion Geophysical, Team Inc. also works outside of the oil business. It’s involved in power and manufacturing, aerospace, pulp and paper as well as other industries.
But at the end of the day, investors are interested in one thing above all others: returns. And that’s why Team Inc. is one of the most attractive penny stocks out there. TISI stock has the potential to more than triple in price according to analysts with coverage. They’ve given it an average target price of $10, and it currently trades at $2.80.
And there are a few reasons to believe Team Inc. could soon be on the rise. It was recently awarded a multi-year contract by Chevron (NYSE:CVX). Team Inc. CEO Amerino Gatti said, “This contract award is a result of a long-term partnership and track record of successful collaboration. Our new Asset Integrity & Digital Group will work closely with Chevron to provide technology-enabled inspection services and engineering assessment solutions.”
Furthermore, TISI stock has been near the $12 level as recently as April, and oil prices are surging as you read this.
Regis Corp. (RGS)
Source: Casimiro PT / Shutterstock
Switching gears, Regis engages in beauty salon franchise operation and ownership. It sells branded products, but you would much more likely know it from its salon brands like Supercut and Cost Cutter.
The company recently underwent a reorganization. So far, it looks like the move strengthened the company based on recent quarterly results. Regis reported $60.1 million of revenue in Q2 2020. After the reorganization, it reported $99.1 million in Q2 2021 revenue.
Furthermore, losses shrunk from $36 million to $26 million in the same period. If the trend continues in future quarterly results, RGS stock could take off.
Like all the other penny stocks on this list, RGS stock is NYSE listed and has plenty of upside. Analysts have given it a $5.75 target price. It now trades at $3.07, but it has been as high as $13.60 as recently as late April.
Penny Stocks: Invacare Corp. (IVC)
Source: sfam_photo / Shutterstock.com
Invacare is a medical equipment company that makes products including manual and powered wheelchairs, medical beds, personal care equipment and respiratory therapy equipment.
Invacare shares were priced significantly higher several months ago. Early in 2021, IVC stock traded above $10, which is where it should head based on the median target stock price. However, it is facing supply chain issues like many, many other firms at present.
CEO Matt Monaghan notes how that uncertainty has negatively affected the company’s stock price:
“It is difficult to determine exactly when the pandemic-induced global supply chain turmoil will stabilize. However, we expect 4Q21 to improve sequentially from the third quarter, albeit more gradually than initially anticipated. Increases in our workforce at key locations to improve throughput, as well as an increase in the number of freight carriers to expedite order delivery, should reduce our currently elevated backlog, driving revenue growth and adjusted EBITDA improvement.”
So this is clearly a rebound bet, but one with plenty of upside and a price precedent that makes it very attractive.
Arcos Dorados Holdings (ARCO)
Arcos Dorados Holdings is a restaurant franchisor and operator. Specifically, the company operates and franchises McDonald’s (NYSE:MCD) restaurants across the entirety of Latin America and the Caribbean.
Unlike some of the other picks on this list, ARCO stock probably won’t triple or even double in price. After all, it currently trades at just under $5 per share and carries a target price a bit over $7.
On the Arcos Dorados website, 10 analyst ratings are listed. Three of them are “neutral” ratings, and all the rest are “overweight” or “buy” ratings.
Although the upside looks positive, it may appear less attractive than others on this list. But what it lacks in relative upside, it makes up for in brand power. Like McDonald’s stock, ARCO stock has a dividend policy. Arcos Dorados suspended that dividend in late 2020, but announced it will resume payouts in 2021.
The company is performing well of late. In Q2, total revenue increased 104.5% on a YOY basis. On top of that, revenue also increased 4.2% on a two year basis.
Penny Stocks: Exterran Corp. (EXTN)
Exterran is the third Houston-based firm on this list. That should probably give readers a hint as to where many pundits believe growth in products and services will originate from. That is, of course, oil and energy, with Houston being the U.S. epicenter of the industry.
Exterran focuses on contract operations and after-market services as well as product sales across oil, gas and water power. The company hasn’t suffered sharply throughout the pandemic. That may come as a surprise given the choppiness of oil demand and prices over the past year and a half.
Q2 revenues actually increased fairly significantly this year at the company, rising from $131.1 million to $146.2 million YOY. At the same time, losses also increased, rising from nearly $32 million to more than $35 million YOY.
The company was recently awarded a significant water contract, which means that area will now represent roughly 25% of its backlog. Analysts see significant momentum inherent in the firm’s stock and believe it should double based on their target prices.
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On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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