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Penny stocks can be really lucrative investments if you know how to trade them. Our top penny stock, in fact, could be due for a 192% breakout.
Today, though, we're not just going to show you our top penny stocks to watch right now. We're also going to tell you a strategy for finding stocks that beat the market almost every time.
An important word for penny stock investors today to remember is "fair value." That's the actual value of a stock that the market is mispricing. You see, the market can be erratic, and it happens to misprice stocks quite often.
That's why there are always stocks getting mispriced. In fact, sometimes stocks are priced at half the value they should be. And that means investors could double their money or more on some of these undervalued stocks.
But how do you determine if a stock is undervalued?
A good start is to compare the growth rate for earnings to the price/earnings (P/E) ratio at which the stock is currently trading. As a general rule, the higher the growth rate is compared to the current P/E ratio, the more likely the stock price is to rise.
Now, when we're talking penny stocks – those that trade at $5 or less – finding these valuation relationships isn't easy.
To make things easier, we use the Money Morning Stock VQScore™ system. The system uses a proprietary algorithm to scan the financials underlying thousands of stocks. It gives them each a score between 0 and 4.9.
Anything above 4.0 is in the "Buy Zone." So if we want to know which penny stocks are poised to break out, all we need to do is look at the stocks in the "Buy Zone" that are trading for under $5.
Our top penny stock today has a near-perfect VQScore of 4.7, with growth potential of 192%.
But all of these are top penny stock picks for 2020…
Top Penny Stocks to Watch in 2020, No. 3
Central banks around the world have begun to use lower interest rates as a tool to keep their economies running. This is a boon for gold stocks.
And it's why our favorite gold stock now is likely undervalued. Based on the P/E to expected growth metric, this looks true for Kinross Gold Corp. (NYSE: KGC).
Analysts forecast that Kinross will expand its profits 26% year over year. The P/E multiple is currently 14. That gap between 14 and 26 may grow if inflation rises. And easing by banks could make it even bigger.
Over the past half year, the shares have done well, rising 24%. But some analysts are giving it a high target of $7.50 from today's $4.49, which represents a growth target of 67%.
This next stock has growth potential upwards of 201%.
Top Penny Stocks to Watch in 2020: No. 2
Profits are expected to grow around 54% on average in the next year for Callon Petroleum Co. (NYSE: CPE). Yet the stock trades at a P/E multiple of just 5.
Much like gold, easy money can set oil prices going up across the world. They have been rising during the second half of 2019, and that may well continue.
We believe $100 per barrel oil is possible in the near term.
That's also when CPE will likely trade in the double digits, far above today's price of $4.31 per share. In early 2019, CPE sold for more than $8. It could nearly triple from current levels in a year or less.
This one has a growth target of $13 for the year from today's $4.31, a whopping 201%.
This next penny stock has around the same appreciation potential. But it also has a near-perfect VQScore of 4.7. Part of the reason is that its product is so unique and forward-looking.
Here's the most valuable penny stock on this list…