It’s been a few months since I last wrote about the best penny stocks. It’s never an easy task finding quality companies with rock-bottom prices under $5.
In the past, I’ve limited my search to stocks included in the S&P 1500. Buying penny stocks is risky enough. Being part of a major index gives me a little reassurance that the company’s not a complete trainwreck.
The three penny stocks I highlighted last October: Chico’s (NYSE:CHS), WisdomTree (NYSE:WT), and Genworth Financial (NYSE:GNW) are up 4.6%, 25.6%, and 37.6%, respectively, since then. Over the same period, the S&P Composite 1500 gained almost 15%. So it is all-around good news.
For this installment, I’m opening the screening up to all U.S.-listed stocks, including those trading over the counter.
In order to qualify, stocks had to trade between $1 and $5 as of their selection, have a return on capital of 10% or higher, net debt of $1 billion or less, and a market capitalization greater than $50 million.
My screen finds 33 U.S.-listed penny stocks a second look. These three got my attention. Maybe they’ll get yours.
Yalla Group (YALA)
By the time this is published, there’s a chance that Yalla Group (NYSE:YALA) stock will have drifted out of penny-stock status. However, as I write this minutes before the close of Feb. 8 trading, YALA is six cents under $5, making it eligible under the traditional definition of a penny stock.
The company’s main product is Yalla, a mobile app that provides a voice-centric social networking platform for people in the Middle East and Northern Africa. It’s the modern version of the old beep lines where you could simultaneously converse with several people when the phone lines were overloaded.
While long gone, they live on with modern technology and willing users.
In the third quarter that ended on Sept. 30, 2022, Yalla’s paying users were 11.5 million, 50.3% higher than Q3 2021 and 8.5% ahead of Q2 2022. At the same time, its monthly active users (MAUs) increased 35.6% from a year earlier to 30.9 million, so its paying users accounted for 37.2% of this total. If this last number keeps sequentially higher, shareholders will be delighted in 3-5 years.
The company had $80.1 million in revenue in the third quarter, 70% from chatting services and 30% from games services.
Due to higher expenses, its adjusted operating profits fell slightly in the quarter to $29.5 million, $4.1 million less than a year earlier.
Although its stock’s gained nearly 35% year-to-date, it still has a reasonably high earnings yield of 9.48%. Moreover, with net cash over $410 million, it shouldn’t trade for less than $5.
Assertio Holdings (ASRT)
Since October, Assertio Holdings’ (NASDAQ:ASRT) stock has been on a tear, up 117% in less than four months. A big reason for the gains is the Oct. 27 announcement that it had acquired the exclusive licensing rights for Sympazan oral film from Aquestive Therapeutics (NASDAQ:AQST). The prescription medicine is used along with other medicines to treat seizures of patients two or older suffering from Lennox-Gastaut Syndrome (LGS).
“Sympazan can offer benefits to its prescribed population, such as dosing through its oral film technology. For many LGS patients, severely restricted carbohydrate diets, such as keto, are an important treatment approach,” stated Assertio CEO Dan Peisert.
The company made an upfront $9 million payment with an additional $6 million milestone payment in 2023 when Aquestive should get a patent extension for Sympazan until 2023.
Acquiring the Sympazan exclusive license is part of the company’s goal to acquire $40 million in gross profit by 2024.
Like other micro-cap drug commercialization companies, you’re only as good as the drugs you acquire on license from drug developers. Once you’ve acquired an exclusive license, you’ve got to follow through with sales.
So far, so good. In 2022, it expected sales in excess of $141 million with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) over $86 million. That’s just 2.6x adjusted EBITDA. Regeneron (NASDAQ:REGN), a much bigger competitor, trades at 15.5x EBITDA.
Something to shoot for.
Marygold Companies (MGLD)
Marygold Companies (NYSEMKT:MGLD) is the smallest of the three, with a $69 million market cap. Nevertheless, it is interesting because of its many disparate parts. It’s a unique holding company, for sure.
Based in California, the holding company’s website says, “Invests in, and builds, great companies.” Sounds a lot like Warren Buffett. Well, a very tiny version, anyway.
It currently has six subsidiaries, one of which, Brigadier Security Systems, is based in Saskatoon, Saskatchewan. That’s deep in the heart of the Canadian Prairies. It provides security systems for residential and commercial requirements.
Its other subsidiaries include Gourmet Foods Ltd., a New Zealand baker; USCF Asset Management (best known for its oil ETF); Original Sprout hair and skin care products; Printstock Products Ltd., a specialty printer of food packaging; Marygold & Co. (UK) Limited, a UK-based investment adviser; and, Marigold & Co., a developer of a mobile banking app that allows anyone to send, receive, spend, and save.
If you look at the company’s 2022 Chairman’s Letter, you will see that since 2016, it has grown Marygold’s book value per share by 24% compounded annually. Yet its share price’s compound annual growth rate over the same period is 9%.
It’s fair to say that an investment in MGLD should not be with money intended for your child’s college education or your retirement. Nonetheless, if its mobile banking app, which is currently in beta testing, is at all successful, it won’t be a micro-cap for too much longer.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.