Let’s take a look away from the headline-grabbing market giants, and head into the world of penny stocks. Traditionally, these were stocks priced at just pennies per share – that’s the old English copper penny, when it was 240 pence to the pound – but nowadays the ‘pennies’ are stocks with share prices under $5.
The penny stocks offer retail investors a series of advantages, all connected. Their low price makes the cost of entry to the market affordable – a relatively small investment can net a large bloc of shares. And, that low share price amplifies the gains from even a small absolute increment of increase – it turns into a high percentage gain of return on investment. Of course, that same factor also amplifies the risk – but investors should note that some of Wall Street’s top stock analysts take a positive view of the pennies.
Covering the market from H.C. Wainwright, 5-star analyst Amit Dayal – rated #22 overall by TipRanks – has noted three penny stocks with triple-digit upside potential. These stocks have slipped under Wall Street’s radar, and don’t have the extensive coverage that better-known companies get, but Dayal believes they’ll bring investors solid returns. We’ve looked up these stocks, using the data tool on the TipRanks platform, to find out what makes them so compelling to a top analyst. Here are the details, along with Dayal’s commentary.
BioHiTech Global, Inc. (BHTG)
Let’s start with the green economy. Political trends aside, this is a fascinating sector for a simple reason: we can all agree that pollution is no good, and keeping a cleaner world is better for all of us. BioHiTech works on the waste management end of that fact – providing services to reduce the impact waste disposal has in a cost-effective mode. The company’s products include affordable biological digester systems to reduce food waste, clean and safe disinfectant systems, and even – in West Virginia – a facility for the production of renewable fuel from carbon-based materials in municipal waste.
In addition to these green services, BioHiTech also offers customers a data analytic service designed to track recycling activities. The company markets its products and services to a variety of industries, including assisted living and healthcare facilities, schools, cruise lines, and city governments.
The first quarter of 2021 saw BHTG, in a sense, come into its own. Top line revenues jumped 21% sequentially from Q4, and an impressive 124% year-over-year from 1Q20, to reach $3 million. It was the highest quarterly revenue since the company’s public debut in 2015.
Three highlights of the first quarter will serve to showcase the company’s growth potential. First, in January, the company picked up a $2 million order for food waste digesters from Carnival Cruise Lines and Princess Cruises. In March, the company followed up with $1.8 million in additional new orders from Carnival, that extended into the cruise company’s UK and Italian brands. And for the quarter as a whole, equipment sales reached $2.3 million, up more than 600% from the year-ago quarter.
This kind of growth got top analyst Dayal’s attention. In his report initiating coverage of the stock, which Dayal described as ‘Bringing a technology value proposition to waste management,’ the analyst wrote, “We believe BioHiTech should be a beneficiary of landfill capacity constraints that should drive adoption of improved waste management solutions…. We believe waste generation in the U.S. should be expected to continue trending higher, but regulations, location limitations, and costs make it challenging for new landfill capacity to come online easily. With food being the largest component of waste in landfills at over 20%, we believe BioHiTech’s onsite food waste digesters can meet a critical need of the industry.” (To watch Dayal’s track record, click here.)
In line with these comments, Dayal rates the stock as a Buy, and his $4 price target implies robust growth of 181% for the next 12 months. Dayal’s review is the only one file for BHTG shares, which are currently selling for $1.42. (See BioHiTech’s stock analysis at TipRanks.)
Calyxt, Inc. (CLXT)
With the next stock, we’ll stay in a biology-related industry. Calyxt, based in Minnesota, a state with a large agricultural sector, is a plant-technology company, working to develop new products from plants, to bring wellness and sustainability benefits to end users. The company’s development program works with farmers and agricultural companies using modern plant breeding techniques. Products include winter oats, high fiber wheat, high fat soybeans, and new strains of hemp. All of these products have direct application to mass farming production and customer demand.
In one example of Calyxt’s products, the company announced in early May the launch of a new premium soybean for cultivation. The new bean is in the premium soybean oil market, and is a high oleic, low linolenic product. The company boasts that the new bean will offer a ‘superior functional performance and fatty acid profile superior to other premium oils.’
In its first quarter 2021 financial results, Calyxt reported a top line what was down sharply from the prior quarter $13.9 million – however, the $4.4 million reported in Q1 was still up 85% year-over-year. The yoy increase was driven by sales of the 2020 grain crop; the company reports that as of the end of Q1, it had sold 50% of the 2020 grain. The company reported lower operating expenses in 1Q21 than the year before, and an adjusted net loss of $8.8 million for the quarter, compared to $10.8 million in the year-ago period.
In his coverage of this stock Dayal notes a change in management’s focus that should benefit investors: “The company has now shifted its commercialization strategy to primarily being focused on licensing and trait development vs. prior plans to engage in both seed sales and licensing deals. This should lower Calyxt's future working capital and logistics needs in a meaningful way as the company has at least eight products in various development phases that would have required varying resource commitments to establish seed sales. In line with this, we believe the company's margins should be materially higher if licensing deals come to fruition.”
Dayal gives CLXT shares a Buy rating, and his $10 suggests a 153% one-year upside potential.
Overall, this stock gets a Moderate Buy consensus rating, based on 2 positive reviews on file. The share price, at $3.95, has a 115% upside potential based on the average price target of $8.50. (See Calyxt’s stock analysis at TipRanks.)
SenesTech, Inc. (SNES)
Our last penny pick is another biotechnology company, in a third separate niche. SenesTech focuses on pest control, specifically on rodent control – a major issue, particularly in crowded urban areas. The company’s first marketable product is ContraPest, a non-lethal method of controlling brown and black rats through contraception. The substance is designed to be consumed by the rats, induce sterility, and reduce rodent populations over time. ContraPest was approved by the FDA in 2016, and has been shown to cause a 40% reduction in rodent populations in 12 weeks.
SenesTech highlights several advantages in its approach to rodent control. By using a product that is sweet to the taste, the company has avoided the ‘bait aversion’ common to many rodent poisons. In addition, the product is easier to keep away from children and pets – and while it should not be consumed, is non-lethal in case of accident. And finally, users of traditional rodent poisons often see a population rebound effect when the poison is removed, as surviving rodents begin breeding successfully – SenesTech’s contraceptive product avoids that problem entirely.
The COVID crisis put a sharp damper on sales and marketing, although the company was able to reduce its net losses over the past four quarters, 2Q20 through 1Q21, compared to the run of 2Q19 through 1Q20. In its 1Q21 quarterly fiscal report, the company stated that ContraPest has completed 5 years of successful testing in agricultural, commercial, municipal, and residential localities – and that now, post-COVID, the company is ready to resume larger-scale marketing and sales activities.
Looking at some selected financial numbers, SenesTech showed revenue of $88,000 during Q1 – this is a low number, but it compares well to the $37,000 reported in the year-ago quarter. The net loss was $1.8 million, but again, this was better than the $2.7 million net loss in 1Q20. On the positive side of the ledger, SenesTech has a $20,000 backlog of orders which it could not fill in Q1 but did fill in Q2, and cash holding of $15.2 million.
Dayal appreciates that this company is in the early stages of its growth, and writes of its path forward, “We believe California remains SeneTech’s priority market, accounting for roughly a third of its first-quarter revenues. Recent legislation in California prohibits the use of the four major second generation anticoagulant rodenticides, opening an opportunity for non-lethal pest control alternatives…. We believe business development efforts are also ramping up as pandemic-related hurdles on this front are now easing up. From an operational perspective, the financials should now begin reflecting lowered costs creating room for operating leverage to kick in as revenues scale. Investors should note that the company is still in the early stages of growing revenues, and its strengthened balance sheet should be supportive to these efforts.”
Dayal makes this stock a third Buy rating among the pennies, and his $4 price target implies a $161% one-year upside form the current share price of $1.53. Dayal’s is the only review on file for this under the radar company. (See SenesTech’s stock analysis at TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.