4 Penny Stocks to Invest in For the Long Term

Oct 5, 2020 12:11 PM ET
4 Penny Stocks to Invest in For the Long Term

Penny stocks are companies whose shares trade at less than $5 per share. These companies are extremely popular among small traders because of the amount of their profit potential. For one, it is common for small cap companies to have intraday gains of more than 10%. Also, if you have $1,000 you can buy more penny stocks than shares of big companies like Amazon and Alphabet. In this report, we will look at 4 of the best penny stock companies to invest in for the long-term.

GoPro (GPRO)

  • Industry – Consumer products

  • Stock price - $4.30

  • Market cap - $640 million

GoPro has been a sad story for investors. Once valued at more than $11 billion, the company has seen its market cap evaporate to just $640 million. In other words, the stock has dropped from an all-time high of almost $90 to the present $640 million. This decline has happened because of the saturation of the motion camera industry and the rapid improvement in phone digital cameras. The firm has also failed to innovate as its other peers like DJI have.

However, the company has managed to have a dedicated fanbase who keep buying its products. Indeed, the company’s revenue has grown from $234 million in 2011 to more than $1.19 billion in 2019. At the same time, the rising costs have seen its net income fall from more than $419 million in 2014 to a loss of $14.6 million. 

All these facts, together with the rising competition, make it difficult to recommend GoPro as a viable long-term investment. However, the company still has its strengths. First, its loss narrowed from $419 million in 2014 to $14.6 million in 2019. While the loss will increase this year because of COVID, I suspect that the company will continue narrowing its loss in the next few years. 

Second, GoPro is a strong brand that is beloved by millions of people in the US. Indeed, it has a 93% market share in the United States. This makes it a viable acquisition target by private equity firms or other tech companies. Finally, GoPro has a relatively strong balance sheet, with more than $79 million in cash.

Lending Club (LC)

  • Industry – Finance

  • Stock price - $4.53

  • Market cap - $409 million

Like GoPro, Lending Club is another fallen angel that was once valued at more than $10 billion. The company’s stock has dropped by more than 96% since its IPO. This year alone, it has fallen by more than 64% for obvious reasons. 

Because of the pandemic, the unemployment rate in the United States has risen to more than 8% which has led to more people defaulting on their loans. Indeed, the biggest banks in the US have allocated more than $100 billion to bad debt this year. Also, the company has been affected by extremely low interest rates. 

For starters, Lending Club is a pioneer peer-to-peer lending among people. This model creates a win-win situation for lenders and borrowers. Borrowers get the funds they need while the investors earn an interest. 

The company’s spectacular downfall has happened even as the annual revenue has grown from $6.5 million in 2011 to more than $723 million in 2019. Also, before the pandemic, the firm had managed to reduce its annual losses from more than $153 million in 2017 to $30 million in 2019. 

We believe that Lending Club is an ideal penny stock for several reasons. First, it is a well-recognized brand with millions of users. Second, the firm has a solid balance sheet even as it goes through a tough phase. Third, it is in a transition to become a bank, which could possibly benefit investors in future. 

Colony Capital (CLNY)

  • Industry – Investment

  • Stock price - $2.63

  • Market cap - $1.4 billion

Colony Capital is a New York-based investment firm with more than $50 billion in assets under management. The firm is best-known because of its chairman, Thomas Barrack, who is a close confidant to Donald Trump.

Colony offers its investment products through several arms. Its digital business invests in businesses in the digital infrastructure industry. Among its portfolio holdings are Aptum, Databank, Freshwave, and Wildstone. It also owns Colony Credit Real Estate, a real estate investment trust (REIT) with a market cap of more than $600 million.

The company’s shares have dropped by 54% in the past year mostly because of the pandemic. That is partly because of its ownership of several hotel buildings. Hotels have been beaten-down because of the low occupancy rates. In total, it has fallen by more than 80% as a public company. 

Still, there are several reasons why Colony Capital makes a good long-term investment. First, its stock has a strong yield of about 9.58%. Second, the company has strong real assets that it could offload to boost its balance sheet. In fact, it recently sold six hotels for more than $2 billion. Third, the company has an attractive valuation, which is lower than that of its peer firms.

Colony Capital has great assets it can offload to cover any debt

Colony Capital

Nokia (NOK)

  • Industry – Telecommunication

  • Stock price - $3.78.

  • Market cap - $21.2 billion

Nokia is a leading telecommunication company with a market cap of more than $21 billion and annual revenue of more than $26 billion. In 2019, it had a net loss of more than $7.9 million. The company operates in two segments; consumer and business. In consumer, it offers products like smartphones, wi-fi devices, and smart TVs. 

In business, its biggest business sentiment, the company provides other telecommunication firms with some of the mission-critical products. For example, it is one of the leading brands in 5G and Internet of Things. 

Nokia’s stock has fallen by more than 25% in the past year. Still we believe that its stock price will recover as telecommunication firms increase their investment in 5G technology. Indeed, as shown below, the company is expected to see more shipments of “5G powered by Reefshack” shipments. Also, the firm has a relatively strong geographical representation. For example, it makes about 30% of its revenue in Europe, 34% in North America, and 17% in Asia. Finally, with the battle about Huawei continuing, it means that Nokia is a strong acquisition target.

5G powered by Reefshack

Final thoughts

There are hundreds of small cap stock companies in the United States. Most of these firms are usually bogus, meaning that they have an almost zero percent rate of survival in the long term. Still, there are some relatively strong small cap companies that you can invest in. However, these companies should represent a tiny percentage of your portfolio.

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