The Dow Jones Industrial Average popped more than 500 points after the U.S. Federal Reserve said it would start buying individual corporate bonds in addition to the exchange-traded funds it already buys.
The added stimulus for the markets could be a 190% catalyst for our best penny stock to buy.
You see, penny stocks trade for under $5, according to the U.S. Securities and Exchange Commission. Because their share price is so low, a small move in dollars can be a huge percentage change for the stock.
What's more, the catalyst for a penny stock can be anything from an announcement to a shift in the broader market.
For example, we recommended Inovio Pharmaceuticals Inc. (NASDAQ: INO) in February. It gained 139% by March, after announcing progress in its coronavirus vaccine trials.
But our top penny stock today doesn't even need a scientific breakthrough to pop. It's simply riding the momentum of the broader market.
That's why the Federal Reserve's purchasing activity is a big reason for penny stock investors to pay attention this week. It comes right as economies across the country are reopening after lockdown. And those two things together are launching the major indexes sky-high.
Penny stock investors have more options when the broader market is up like this. But that doesn't mean you go buying just any penny stock you find. Keeping an eye on the trend is still vital to choosing the best penny stocks.
And we've been doing just that. We're going to show you what we've uncovered as the top penny stock this week. But first, here's how we found it...
How to Spot the Best Penny Stocks
Typically, you'd be left to your own devices if you wanted to find the best penny stock to buy. There are thousands of penny stocks to choose from. And penny stock investors have to separate the good from the bad.
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Not to mention, penny stocks move fast. Imagine researching a single penny stock for days only to find that it's gained 200% already.
Luckily, there's a way to do that without diving too deep into the weeds.
The Money Morning Stock VQScore™ system uses a proprietary algorithm to study the financials underlying thousands of stocks. And it tells you whether the stock is primed to rocket higher or fall flat.
It does this by giving the stock a score from 1 to 4.9 - a 4.9 is a perfect score, meaning the stock is on the verge of soaring.
Today's penny stock has a 4.8...
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The Best Penny Stock Today
Real estate has struggled through the pandemic.
The industry suffered a pullback when the pandemic was announced in March. Zillow said that between March and April, 2.7 million adults moved back into their parents' or grandparents' homes. That was an estimated $726 million in monthly rent lost.
But our top penny stock today took the right measures to ensure it would survive. And now that the economy is gaining steam again, it's even more hopeful that this stock will pop in the near future.
MFA Financial Inc. (NASDAQ: MFA) is a real estate investment trust (REIT). The company invests in residential mortgage assets and distributes the profits to shareholders. And if rents go down, profits go down.
But there is no reason to think that the mass exodus from rental spaces is permanent. New information is being learned about the coronavirus every day. The economy is opening, with new measures to mitigate the spread.
And MFA financial has taken the steps to protect itself in the meantime. This stock has a 4.8 VQScore because its executive leadership is quick on their feet.
The company recently sold off $2.1 billion of residential mortgage assets for liquidity. They also announced a $500 capital raise plan with Apollo Global Management Inc. and Athene Holding Ltd.
These moves bolster the company's balance sheet in a time when cash is of the essence. MFA is currently sitting on $45 million in cash as a result of these moves. It also has $213 million in free cash flow.
This will put it in position to make more lucrative purchases if the economy pulls through the pandemic. But it can also protect the company if things take a turn for the worse.
The times have been uncertain. But now that markets are climbing again, MFA is looking up.
You can buy shares of MFA for $2.75 today. But analysts give it a target of $8.25. That's a 190% target for today's investor.
Action to Take: The stock market is seeing new life as the Fed improvises to stimulate the economy. It's going to be a boon for this one real estate stock. You can buy shares of MFA Financial (NASDAQ: MFA) for just $2.75 today. Analysts give it a $8.25 target for 12 months. That's 190% potential if you invest right now.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.