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Penny stocks often get a bad reputation in the media. The term is applied to all stocks that trade for less than $5, which covers a lot of ground. You can find some unsavory characters lurking in that range.
But the best penny stocks can't be overlooked because of their name. There are all sorts of opportunities in the penny stock world involving real companies with outstanding long-term prospects.
These companies offer exciting, innovative new products that just might change the world.
Some penny stock companies are growing sales and profits at a rapid rate that may soon become well-known stocks with institutional capital flowing in to drive the price even higher.
Some are fallen angel stocks. These are former well-regarded companies that have temporarily fallen out of favor. A successful turnaround could attract massive capital that would drive the stock to potentially life-changing gains.
And that's exactly where we'll look today. The coronavirus pandemic has created an unprecedented opportunity in the energy sector. Once powerful energy companies have seen shares tumble as demand plunged. But here's the trick: The world will always need energy, and demand will come back in a hurry.
Ignoring the hype and focusing on fundamentals is the key to finding penny stocks with major upside.
Knowledgeable investors can use common sense to find low-priced stocks with the potential to soar.
Don't Sleep on This Top Penny Stock
Southwestern Energy Co. (NYSE: SWN) does over $2 billion a year in revenue. It is hardly a tiny company. It has been in business since 1929, so it's not exactly a fly-by-night operation. The stock has suffered because its primary business is natural gas. Although the company is based in Texas, its primary focus is the development of unconventional natural gas reservoirs in Pennsylvania and West Virginia.
WARNING: 22 million shares of this stock trade hands every day – make sure you're nowhere near it. Click here…
Southwestern just announced a deal to acquire another gas company in the region that should increase free cash flows by as much as $100 million. The deal adds 195,000 undeveloped acres currently focused on the Utica and Marcellus Shales of Southeast Ohio, West Virginia, and North Central Pennsylvania to Southwestern's current asset base of approximately 173,994 net acres in Northeast Appalachia and about 287,693 net acres in Southwest Appalachia.
Southwestern is likely to be a Rip Van Winkle stock. It will sleep quietly in your portfolio until something happens to cause natural gas prices to tighten. That will start the stock moving, and a continued rise in oil and gas could turn this stock into a 10-bagger in the blink of an eye.
A Rare Penny Stock with a Dividend
EnLink Midstream LLC (NASDAQ: ENLC) is another battered energy stock with eye-popping potential when oil and gas prices begin to firm. EnLink stores and transports natural gas using the approximately 12,000 miles of pipelines and 21 natural gas processing plants it owns.
When the oil and gas markets collapsed earlier this year, the company acted quickly to preserve cash by slashing the dividend by 50% and cutting expenditures by as much as 30%. The MLP also delayed several projects it had planned on for 2020.
Its strategy worked as the company generated $72 million of excess free cash flow for the second quarter of 2020. For the full year, the company expects to generate more than $260 million of free cash flow. It has been using its cash flow to buy back and retire debt, which is a wonderful way to decrease expenses and increase the company's equity value.
As is the case with Southwestern, even a small amount of disruption that moves oil and gas prices higher could lead to 3x returns or more.
Remember that dividend it slashed in half? At today's price, you are still getting paid 13%, so you are handsomely rewarded while you wait for the price to shoot higher. That's also incredibly rare to find a dividend paying penny stock.
Let's do one last energy penny stock for this week. This is a "cock your bat back and let her rip" pick. It is either going a million miles, or it will be a swing and a miss. Don't overload your penny stock portfolio with this one. But if it works, you will make several multiples of your original investment.
And it trades for less than $1 per share.
Our Best Penny Stock to Buy Today
Precision Drilling Corp. (NYSE: PDS) is in, as you might expect, the business of drilling for oil and gas. As oil and gas prices declined, the company saw its stock price get hammered as demand decreased dramatically.
Trading under $1 right now, there is a good chance the selling has gone too far.
If you sold everything it owns at what they carry it on the books for and paid off all the debt, you would have about eight times the value the market places on Precision Drilling's equity.
You could have quite the fire sale and mark the drilling rigs and land rights for pennies on the dollar and still walk away with a profit.
The company is generating cash. Management expects to generate strong free cash flows of $100 million to $150 million in 2020. They plan to use the money to pay down debt, further increasing the value of the equity.
Drilling activity will pick back up at some point. All Precision Drilling has to do to deliver massive returns for oil and gas penny stock investors is survive. With $175 million of cash in hand and a business producing, not spending, cash, that should happen.
Three Stocks We Like Even More Than Precision Drilling
Our Shah Gilani just named three stocks he says are "screaming buys" right now.
All three are trading at a discount… are under-the-radar companies most people haven't even heard of… and have massive tailwinds with the potential to make their prices skyrocket.
Go here to watch Shah give you the company names, tickers, and price targets for three stocks that belong in EVERY portfolio.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.