Penny stocks often carry a stigma in the investment world for good reason — they tend to be associated with high risk and volatility. These stocks, priced under $5 per share, usually represent companies in the early stages of development or facing notable challenges. Most financial advisors will caution you against investing in penny stocks precisely due to their highly speculative nature and potential for abrupt losses — and they are right.
However, along with the inherent risks linked to penny stocks, rare exceptions exist where investors can uncover extraordinary opportunities. Such opportunities usually arise from overlooked gems in the market — companies with innovative technologies, solid business models or compelling growth narratives that could potentially lead to substantial gains.
This article will explore three high-growth penny stocks that could defy typical expectations. Despite their smaller scale and uncertain prospects compared to larger industry counterparts, these penny stocks to buy display compelling attributes that could position them as long-term winners. Nonetheless, anticipate volatility in the journey ahead.
Pennies in a jar on top of a background of pennies. Pennies. Cheap stocks.
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My first pick is Pioneer Power Solutions (NASDAQ:PPSI). The stock is currently trading at just over $4.0, and its performance has historically been volatile. However, Pioneer seems to have compelling prospects moving forward due to its robust position in the power solutions industry.
The company’s product line includes transformers, switchgear and state-of-the-art power generation solutions, catering to a diverse range of clients in several industries. Its diversified portfolio enables Pioneer to capitalize on the increasing demand for reliable and efficient power solutions.
Pioneer’s growth has registered positive signs recently, driven by the ongoing global transition towards renewable energy and smart grid technologies. The company’s revenues jumped by roughly 51% to $40.8 million last year. Further, Pioneer’s FY2024 outlook targets revenues of $52 million to $54 million, representing year-over-year growth of about 30%, suggesting sustained growth moving forward.
My cautionary note is that Pioneer remains unprofitable. The company posted a net loss of $3.6 million last year. Nevertheless, its balance sheet is clear, with a net cash position of $6.1 million to support its operations while it scales.
Enel Chile (ENIC)
electricity pylons and lines at dusk
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Enel Chile (NYSE:ENIC) is the second penny stock to buy. Despite its penny stock status, with shares trading close to $2.73, Enel Chile is a leading and rapidly growing player in the energy sector within Chile. It generates, distributes and commercializes electricity, serving millions of customers nationwide.
What sets Enel Chile apart among high-risk penny stocks is its status as a subsidiary of the €65.5 billion Italian global energy powerhouse Enel SpA (OTC:ENLAY). Enel Chile can leverage the extensive resources of its parent company to drive growth without resorting to highly dilutive equity offerings or taking on highly expensive debt.
Another factor that has aided Enel Chile’s growth is Chile’s relatively favorable regulatory environment and government stimuli for renewable energy projects, which have formed a supportive setting for the company’s expansion plans.
Apart from its rapid growth, investors are also usually attracted to Enel Chile because of its impressive dividend history. Although the stock’s double-digit dividend yield underscores the associated risks, such as FX fluctuations and variable dividend per share (DPS) rates, Enel Chile has historically delivered generous payouts. Notably, last year’s DPS translates to an extraordinary yield of 9% at the current stock price.
Sirius XM (SIRI)
Person holding mobile phone with logo of US broadcasting company Sirius XM Holdings Inc. (SIRI) on screen in front of web page. Focus on phone display. Unmodified photo.
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Sirius XM (NASDAQ:SIRI) is my third and final penny stock pick. While it is classified as a penny stock, trading at just $2.61 as of writing this article, Sirius leads the satellite radio and digital entertainment space. The company has solidified its position as a top provider of subscription-based radio services, with a huge subscriber base of 33 million that continues to expand consistently.
A noteworthy competitive advantage of Sirius XM is its exclusive content agreements. For instance, partnerships with major sports leagues such as the NFL and NBA have enabled the company to offer exclusive broadcasts of games and events, drawing new subscribers to its platform and retaining existing ones. This is why you will hardly see any significant revenue fluctuations over the years. Instead, growth has been steady, with revenues advancing at a CAGR of about 9% over the past decade.
Further, Sirius is a rather profitable company, another characteristic that sets it apart from most penny stocks. Therefore, the company has been able to afford a growing dividend in recent years. Its DPS has grown for seven consecutive years, while due to shares sliding over the past year, the stock’s dividend has advanced to a rather notable 4.1%.
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On the date of publication, Nikolaos Sismanis did not hold (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.
Nikolaos Sismanis is a professional research analyst with five years of experience in the field of equity research and financial modeling. Nikolaos has authored over 1,000 stock-related articles that focus on uncovering deep value opportunities, identifying growth stocks at reasonable valuations, and shining a spotlight on overlooked international equities.
