The market’s roller coaster week has some investor spooked, wondering if the recent bullish streak will hold. They can take heart from JPMorgan strategist Marko Kolanovic, who believes that the bull spirit isn’t gone, and that the S&P 500 will break out of the 250-point range it has been stuck in since early June. He doesn’t say that the massive gains of April and May will return, but Kolanovic does believe that the index will regain the all-time record levels it saw in mid-February.
Kolanovic notes that equities are cheap for now, when compared to bonds, after the effects of the economic stimulus policies. He also points out that the risks – of a second corona wave, or a Joe Biden victory in November – are likely overstated, and that as hedge managers realize this, they will shift funds into the stock market.
If the optimists are right, and markets are heading to record highs, then now is the time to prepare your portfolio.
And this brings us to penny stocks, those low-cost equities priced below $5 per share – are a high-stakes opportunity with upsides that frequently approach several hundred percent and a low enough cost of entry to mitigate the attendant risk. These companies are priced low for a reason, but for those that break out, the rewards are tremendous.
With this in mind, we’ve used the TipRanks database to pinpoint three penny stocks poised for sky-high gains. To minimize the risks, all three combine high ratings from Wall Street’s analysts, and a growth potential of 90% or higher.
We’ll start with a player in the semiconductor industry. Pixelworks occupies an important niche in the chip sector. As its name suggests, Pixelworks’ semiconductor and software products are integral in video and pixel processing. The company also provides high-image-quality digital display and projection devices, and owns over 350 patents involved in digital visual display technology.
The popularity of online video and streaming services gives a natural opening to company like Pixelworks. The company’s chips are used in several lines of smartphones, including some of Nokia’s new 5G devices.
Pixelworks faced headwinds in Q1, due to the coronavirus impact on supply chains and sales networks. Earnings came in at a net loss, of 7 cents per share – but that was a significant beat of the 10-cent net loss forecast.
The company was able to manage the headwinds during 1H20. Management reported a strong liquidity position, with over $20 million in cash and cash equivalents available. That number includes a $5.2 million draw from existing credit lines.
Given the strength of its services and its $3.10 share price, several members of the Street believe that now is the time to pull the trigger.
Roth Capital’s 5-star analyst Sujeeva De Silva states the clear path for Pixelworks going forward: “We believe PXLW represents a differentiated investment opportunity in video display processing capabilities… We believe PXLW nonmobile segments are being impacted in the outlook by continued inventory corrections and demand uncertainty, but expect benefit from mobile ramp through the CY20 timeframe…”
De Silva gives PXLW a $6 price target to back his Buy rating. At current levels, this implies an upside of of nearly 95% for the stock. (To watch De Silva’s track record, click here)
Wall Street is in agreement with this analysis. Over the last couple of months, PXLW has received nothing but “buy” ratings from Street analysts. With an average price target of $5.92 per share, PXLW could see it’s shares rising nearly 92% over the next months.
Inspired Entertainment (INSE)
Gaming and betting have always made a perfect pair, and the second stock on our list, Inspired Entertainment, is a global gaming technology company. The company designs online games for server-based systems, offering casino-style games, virtual sports, and lottery games around the world. Inspired offers games and terminal for betting shops, pubs, and arcades, along with online digital games.
The corona quarter, while challenging for companies across the board, brought a degree of opportunity to Inspired. The company’s online operations were strong, as the lockdown policies kept people at home – and looking for something to do. Online gaming was a natural fit for the time.
Meanwhile, the company has been taking strides in its virtual sports segment. Inspired has entered agreements with DraftKings, the major online fantasy league provider, to expand the game options. the company also announced in June a similar agreement with Scientific Games.
Against this backdrop, Wall Street believes INSE’s long-term growth narrative is strong and that its $2.43 share price reflects the ideal entry point.
Roth Capital’s 5-star analyst David Bain believes “INSE’s stock multiple should rerate higher.” Bain wrote, “We believe INSE’s online gaming is increasing as a percentage of its business and could represent up to 20% of CY21 EBITDA. With investors valuing Draftkings at nearly 20x CY21 revenue, we believe INSE’s under 4x CY21 EV/EBITDA valuation should be reset.”
In line with his comments, Bain rates the stock a Buy. His $12 price target indicates a massive upside potential of 393% for the coming year. (To watch Bain’s track record, click here)
Overall, with only bullish calls issued in the last three months, the word on the Street is that INSE is a ‘Strong Buy’. Adding to the good news, its $8.50 average price target indicates about 250% upside from current levels. (See INSE stock analysis on TipRanks)
Clear Channel Outdoor Holdings (CCO)
We focus so much on digital marketing and advertising that the more traditional forms of advertising sometimes get lost in the shuffle. But billboards and posters remain a vital part of most marketing campaigns. Clear Channel Outdoor Holdings, through its subsidiaries, controls a portfolio exceeding 450,000 displays in 31 countries across the Americas, Europe, and Asia. That display portfolio includes over 15,000 digital displays, ranging from small posters to full-size digital billboards.
Once again, this is a company that felt heavy pressure in the ‘corona quarter.’ With outdoor traffic heavily reduced, companies cut back on billboards and other public display ads.
As government authorities, at local, state, and national levels, move toward reopening policies, CCO’s outlook naturally improves. The main headwind of the coronavirus period was a lack of outdoor traffic to see the company’s displays; that is slowly resolving itself with the gradual ‘return to normal.’
Currently going for 90 cents apiece, several members of the Street think now is the time to get on board
Among the bulls is Cowen analyst Lance Vitanza. The analyst wrote, “We remain constructive on the longer-term opportunity in out-of-home advertising which should continue taking share from print, radio and broadcast TV. Our multiple however reflects cheaper asset valuations across the board. The proposed sale of Clear Media should illuminate the attractive implied multiples at which CCO Americas and CCO International ex-China are selling on a sum-of-the-parts basis. We see an emerging rebound for the outdoor advertising industry, though shares could remain under pressure until the COVID-19 impact substantially subsides. But the shares do embed positively-skewed levered optionality, suggesting an Outperform rating at current levels.”
Vitanza backs his Outperform (i.e. Buy) rating with a $2.20 price target, which indicates his confidence in an impressive 144% upside potential for the coming year. (To watch Vitanza’s track record, click here)
Like the other stocks in this article, CCO has a Strong Buy consensus – and it is based on 3 Buy ratings given in recent weeks. The shares have an average price target of $1.90, suggesting a 111% upside from the $0.90 current trading price. (See CCO stock analysis on TipRanks)
To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.