Penny stocks can be a volatile investment. But our pick for one of the best penny stocks to buy now is an energy company that could produce 80% returns or more.
Though some penny stocks might tumble into disaster, the best penny stocks present considerable upside. A wide swing in the right direction can produce untold riches. It's important to know the difference.
Before you invest in penny stocks, there are a few guidelines you should understand. We'll lay those out for you in just a second. Then, we'll show you a top penny stock with the potential to soar 80% or more in the coming year.
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What to Know Before Investing in Penny Stocks
Being a penny stock investor is equal parts exciting and terrifying. These low-cost stocks, sometimes called cent stocks, are generally $5 per share and under. They are affordable at best but can also be volatile.
A penny stock can return gains of triple digits or more in an incredibly short period - or you could lose your entire investment on the wrong one.
Knowing this, Money Morning has put together several simple rules for investing in penny stocks.
First, stick to the major exchanges. Try to avoid the over-the-counter market. The NYSE and Nasdaq have more oversight and fewer opportunities for scammers to take advantage of the system.
Next, look for stocks that are receiving attention from analysts and getting bullish price predictions. This is a vote of confidence in your investment. Also, try to find stocks that are in hot sectors or a company that could be ripe for a buyout.
For example, a 2018 International Energy Agency report valued the energy industry at $1.8 trillion. It has since been growing by the trillions with clean and renewable energy investment, so the energy sector is hot (just one of the reasons you should pay attention to today's penny stock pick).
Finally, know your limits. In other words, set a budget for penny stock investments and keep them to less than 5% of your overall portfolio.
Now that you know these rules, look at this energy penny stock that keeps beating earnings estimates and shows no signs of slowing down...
One of the Best Penny Stocks to Buy Now
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Southwestern Energy Co. (NYSE: SWN) is our pick for one of the best penny stocks to buy today. This is a Texas-based oil and gas energy company primarily engaged in exploring, developing, and producing natural gas and oil in the United States.
It was founded in 1929 as Arkansas Oil Company and changed its name to the current moniker in the 1980s. The company operates in two segments - Exploration & Production and Midstream.
Geographically, it focuses on exploring and producing energy on the Marcellus Shale in Northeast Appalachia, Upper Devonian, Utica in Southwest Appalachia, and the Fayetteville Shale. It also has interests in Louisiana and Colorado properties.
In its Midstream segment, Southwestern collects, transports, and markets oil, natural gas, and natural gas liquids. It has a pipeline of over 2,000 miles and significant oil, gas, and natural gas reserves.
Southwestern holds drilling rights to more than 918,000 acres across Pennsylvania and West Virginia.
The company has continued to produce strong financial results and show that it knows how to manage its resources.
Southwestern's gross profits have jumped 58% over the past two years due to increased volatility and demand in the energy sector.
This boost in profits has resulted in an increased return on equity, which now equals 35%. The industry average return on equity is just 1.97%, for comparison.
The company has beaten earnings estimates consistently over the past year. For the most recent quarter, Southwestern was expected to post earnings-per-share results of $0.21 but reported $0.25 instead, a 19.05% surprise. For the previous quarter, the earnings surprise was 12.05%.
Compared to its competition, Southwestern is clearly a well-managed company in every respect, but particularly in its use of capital resources.
Even if the energy space continues its volatility in 2019, there is every indication that SWN can weather these conditions.
Southwestern recently released its projections for 2019. In 2018, it sold its Fayetteville assets for $1.86 billion, which is expected to reduce costs and strengthen the company's balance sheet even further. In the coming year, it plans to capture more value from the Appalachian assets, expand its margins, and improve capital efficiency.
Between 2016 and 2017, the company was able to double its liquid natural gas (LNG) revenue while production costs went up just 6% over the same period. Outstanding results like these are what make Southwestern one of the top penny stocks to buy.
You can pick up shares of SWN for $4.05.
Analysts have given this stock a price target of $7.30 over the next year, which translates to an 80.24% gain for today's investor. But this could be far too conservative, considering the stock's VQScore - our proprietary formula for measuring profitability - is a perfect 4, meaning it has the greatest potential for a breakout performance.
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