5 Speculative Penny Stocks Under $5 That Deserve Your Attention

[Editor’s note: This article is regularly updated to include the most relevant information available.]

As I’ve said many times before, stocks in the under $5 crowd (or “penny stocks”) should be avoided by risk-adverse investors, since they are inherently risky. That’s especially true today, with financial markets across the globe falling with velocity not seen since 2009 on escalating concerns that the rapidly spreading coronavirus outbreak and plunging oil prices will send the global economy into a recession.

That may happen. But I don’t think it will. And if it doesn’t, the stock market — which presently features a dividend yield more than triple the 10-Year Treasury yield — is due for a huge v-shaped recovery in the coming months.

If stocks bounce back, speculative penny stocks will bounce back even more, since these are risk-on plays which investors love to sell when markets are dropping, and love to buy when markets are rallying.

With that in mind, some of the top penny stocks that deserve your attention in March — and could bounce when markets reverse course — include:

• Plug Power (NASDAQ:PLUG)
• New Age Beverages (NASDAQ:NBEV)
• Nio (NYSE:NIO)
• SPAR Group (NYSE:SGRP)
• Express (NYSE:EXPR)

I think that these penny stocks have a decent chance of exploding higher once markets recover. Much like wearables maker Fitbit (NYSE:FIT), which went from under $3 to over $6 in a matter of months in late 2019 thanks to an acquisition. Or online insurance marketplace EverQuote (NASDAQ:EVER), which went from $4 to $40 over the course of 2019 as the company’s core business gained impressive momentum.

Still, because these are high-risk, high-reward stocks, I would stay from these stocks if your risk tolerance is low, or if you can’t stomach volatility. I’d also caution against buying these stocks here and now amid such market turbulence.

Instead, wait for the clouds to clear. Wait for volatility to settle down. See how the coronavirus situation plays out. See how the oil situation plays out. Then, once the risks clear and the outlook improves, consider taking small positions in these speculative plays.

Penny Stocks Under $5: Plug Power (PLUG)

Source: Halfpoint/ShutterStock.com

Stock price as of this writing: $3.90

One penny stock which has been explosive over the past year is hydrogen fuel cell maker (HFC) Plug Power.

The bull thesis at Plug Power is pretty simple. Hydrogen fuel cells have been around for a long time as a clean energy solution. But, they’ve lagged electric batteries in terms of mainstream clean energy adoption, for various reasons ranging from safety concerns to a lack of charging  infrastructure.

That’s changing today. Hydrogen fuel cells, which have become increasingly safe over the past few years amid technological improvements, are gaining significant traction in the material handling industry, where these fuel cells are actually better than electric batteries because they deliver more power for longer times at lower costs.

That’s why huge companies like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) are increasingly deploying Plug Power’s HFC forklifts in their warehouses. More companies are quickly joining suit, too, amid increasing pressure on companies to find cost-effective ways to reduce carbon emissions. For example, Plug Power just landed a third big anchor customer in 2020, which many analysts speculate to be Home Depot (NYSE:HD).

Over the next few months and years, Plug Power will keep expanding its customer list, while current customers will up their spending. This double tailwind will drive huge revenue growth and margin improvement at the company, the sum of which will turn today’s losses, into tomorrow’s profits. All of that growth will inevitably power PLUG stock way higher in the long run.

So, if/when current market turbulence passes, consider buying the dip in PLUG stock as a long-term speculative play on hydrogen full cell technology.

New Age Beverages (NBEV)

Source: Toshio Chan / Shutterstock.com

Stock price as of this writing: $1.70

Global beverage company New Age Beverages has been plagued by deteriorating fundamentals and financial trends over the past few years. That’s why NBEV stock trades at $1.70. But, things could get better in a big way over the next few years.

If they do, this stock could soar from here.

As the name would imply, New Age Beverages sells drinks. They’ve had trouble selling those drinks for several years. But most of these drinks are low-calorie drinks intended for the health-conscious crowd, and demand for such drinks is rising thanks to a secular consumption pivot towards healthier drink options. At the same time, New Age Beverages’ drinks are finally gaining national distribution, as the company has recently landed big partnerships with the likes of Circle K, 7-Eleven and Walmart (NYSE:WMT).

So, over the next few years, New Age Beverages’ increasingly relevant drink portfolio will gain more national distribution. That’s a recipe for big sales growth.

If New Age can sustain healthy gross margins and drive positive operating leverage alongside that big sales growth — which are admittedly two big “ifs” — then the company will roar into profitable territory. A push into the black will provide strong tailwinds for the stock to soar from current levels.

Again, I caution against buying the dip in NBEV stock amid broader market turbulence. Until the market starts working again, NBEV stock won’t work. Be patient, and wait for volatility to pass.

Nio (NIO)

Source: xiaorui / Shutterstock.com

Stock price as of this writing: $3.30

Chinese premium electric vehicle (EV) maker Nio has been on a roller coaster ride over the past year and a half. It increasingly looks like this roller coaster ride is ready for a sharp upturn soon.

Long story short, Nio struggled to sell cars in the first half of 2019, then picked up steam in the second half amid easing U.S.-China trade tensions and a new vehicle launch. Over the next few years, these improving demand should continue to improve, supported by rising demand for electric vehicles from strong Chinese consumers who are bolstered by robust fiscal stimulus in the country.

It also helps that NIO just secured 10 billion yuan in financing from Hefei’s city government, thereby shoring up the balance sheet and easing going liquidity concerns.

Yes, the wildcard here is the coronavirus. But, that wildcard will likely be short-lived. New cases in China are already dropping, and the World Health Organization has publicly stated that the outbreak in China has already peaked.

As such, this headwind appears to already be passing for China. Once it fully passes, Nio stock should rebound in a big way behind improving delivery and revenue trends, and increased investor confidence surrounding the balance sheet.

SPAR Group (SGRP)

Source: Shutterstock

Stock price as of this writing: $1.25

SPAR Group is a little-known company which provides merchandising solutions to retailers of all shapes and sizes, with a particular specialty in building the shelves in retail stores.

A weirdly unique business, yes. But, this weirdly unique business is actually benefiting from some mega-tailwinds at the moment.

Specifically, as shoppers increasingly migrate online, physical retail stores are being forced to innovate to keep up. That means that they are having to redesign their stores, which means re-doing the shelves. At the same time, there’s a lot of consolidation going on in the physical industry world, with bigger players gobbling up little players. When that happens, the big player has to redesign the little player’s stores, and yet again, that translates into higher demand for the shelve building services that SPAR Group provides.

It should be no surprise, then, that SPAR’s revenues are up 12% year-over-year through the first three quarters of 2019. This double-digit growth should persist for the foreseeable future.

More than that, the company is profitable, earning 15 cents per share so far in 2019, with plenty of room to increase profitability through positive operating leverage.

The big near-term risk? Coronavirus. If consumers are “social distancing” themselves, they won’t be shopping. If they don’t shop, retailers won’t be updating their stores. I don’t expect social distancing to be that pervasive or last that much longer. Still, I’d wait for this dynamic to fully pass before buying the dip in SGRP stock.

Express (EXPR)

Source: Shutterstock

Stock price as of this writing: $2.50

The management team over at apparel retailer Express recently announced a bold turnaround plan, which includes speeding up product launch times, closing stores, and gutting a bunch of expenses. If they pull it off — and I think they can — then EXPR stock could soar from today’s $2.50 price tag.

Things have been ugly at Express for a long time. The company is riddled with negative comparable sales growth, eroding margins, declining profits, and a rapidly dropping stock price. But management thinks that they can right this sinking ship through a few big changes over the next few years.

Those big changes include relaunching the store’s loyalty program, doubling down on the Brand Ambassador program, and improving product speed-to-market times by more than 20%. At the same time, management plans to close about 100 stores and cut costs by up to $80 million.

Management predicts that, if done correctly, these changes will enable Express to stabilize sales in the $2 billion range, and improve its operating margin to around 5% by 2022.

Following the unveiling of the bold turnaround plan, Wedbush Securities analyst Jen Redding said he is “incrementally positive” on the long term story unfolding at Express.

I am, too. Express is unique in the apparel retail world in that they make branded clothes for young professionals. This is a necessary niche with enduring demand drivers. Quicker product launch times and better marketing should allow Express to more optimally capitalize on this enduring demand, and lead to sales stabilization. Concurrently, store closures will decrease the expense base, which on top of improved sales trends, will produce a slimmer, better, and more profitable retailer.

Again, though, the coronavirus is a big risk for EXPR. So long as consumers are’t shopping for clothes — which they won’t so long as they are concerned about getting sick — then Express’ numbers won’t be good, and EXPR stock won’t bounce. I don’t think this dynamic will last much longer. But, I would wait for it to fully pass before buying into the Express rebound narrative.