Are These ‘Blue Chip Penny Stocks’ A Buy Right Now?
What are penny stocks? The very simplest description of these cheap shares are stocks under $5. It doesn’t matter the exchange or the assets, the basic definition of penny stocks are just based on that price threshold. Given the lower price of these, novice investors tend to overlook or simply justify to themselves that penny stocks aren’t worth the time or risk. However, if they took a look at some of the top penny stocks in 2020, they might change their tune a bit.
Regardless of this, 2020 has been a very unique year for the stock market. Not only did most public companies see their market caps erased in March, but traders also saw something different. That “something” was countless market leaders, blue-chip stocks, if you will, dropping to the lowest prices in their histories. A blue-chip stock is generally a well-known, established company and typically the share price reflects that strength. What’s more, is that many of these “blue-chip stocks” ultimately became penny stocks.
They broke well-below the $5 threshold. Unfortunately, many of them also declared bankruptcy or even went completely out of business. Many of these companies were in industries that the coronavirus pandemic hurt bad. Travel stocks, entertainment stocks, and even real estate management stocks all took a hit earlier this year.
While some have recovered, others remain pinned below $5. In their beaten-down state, are they even worth buying right now? While I’ll leave that up to you, Robinhood traders have helped give these companies a boost in the stock market. Even in light of bankruptcy filings, traders have thrown caution to the wind in lieu of quick gains in the market.
Blue Chip Penny Stocks To Buy [or sell]: Hertz Global Holdings
Probably one of the more famous (or infamous) blue chip penny stocks is Hertz Global Holdings (HTZ Stock Report). The car rental company took the brunt of the COVID hit earlier in the year. As sales diminished and lockdowns went into full effect, social distancing put a huge divide between travelers and service providers. Everything from airline stocks to hotel stocks and everything in between felt the pressure. Prior to COVID-19, HTZ stock was trading north of $18 per share, consistently.
But following the uncertain future, its largest shareholder, Carl Icahn dumped his position in the stock. Fast-forward a few months and some traders assume there’s light at the end of the tunnel. Last week, the company secured over $1.6 billion in debtor-in-possession financing. The company also filed a motion for approval of the financing by the U.S. Bankruptcy Court for the District of Delaware.
This financing is designed to carry the company through its next phase of the Chapter 11 process where up to $1 billion can be used as a means of providing equity for vehicle acquisition in North America. The formal hearing on this will be next Thursday. But keep in mind, if HTZ stock is on your watch list, shareholders are usually some of the last to actually get “paid” in a bankruptcy process. Hertz actually came out and said that equity holders won’t see a recovery unless those with higher priority, such as the company’s debtholders, are paid in full.
So if this is on your penny stocks list, keep that in mind. There still might be a long way to go before Hertz stops feeling the pain of this pandemic.
Blue Chip Penny Stocks To Buy [or sell]: AMC Entertainment Holdings Inc.
AMC Entertainment Holdings Inc. (AMC Stock Report) is another one of the beaten-up blue chip stocks. Pre-COVID levels for this penny stock were north of $7. While this is close to the upper threshold of penny stock territory, AMC stock had never been that low before. The coronavirus lock-downs and social distancing measures along with restrictions on public gatherings helped push this over the edge. AMC stock hit an all-time low this year of $1.95.
As it has recovered a few times since, AMC has yet to solidify itself above the $5 level. The most recent focus for the company is remaining solvent during this time. AMC Entertainment has already announced that it has begun reopening most of its locations. The latest comes as New York state began easing restrictions specifically on movie theatres. However, as we’ve seen other countries go back into lock downs, the movie theatre businesses haven’t faired so well.
Regardless of this, management has made a point to say it doesn’t want plan on going the route of bankruptcy. Rather, CEO Adam Aaron aims to raise funds through the market and taking on additional debt. In line with this, AMC announced this week that it plans to sell 15 million shares through an at-the-market offering.
Before you jump into any penny stock, it’s good to have a grasp on the financial state. Right now AMC is trying to get cashed up to weather this storm. Meanwhile the company already prepped the market with expectations of missing Q3 guidance and reiterated its warning that the company would need to restructure either in-court or out-of-court.
Blue Chip Penny Stocks To Buy [or sell]: Ashford Hospitality Trust Inc.
Ashford Hospitality Trust Inc. (AHT Stock Report) is one of the real estate stocks that was crushed when the pandemic hit this year. Prior to lockdowns and social distancing, AHT shares traded above $22. Just recently, the penny stock reached a new low of $1.31 as the company continues trying to weather this storm. Ashford is a REIT that invests in full-service upscale and upper-upscale hotel properties in the U.S. This includes operating under the Marriott, Hilton, Hyatt, Crowne Plaza, and Sheraton flags.
Obviously, with less travel, the industry felt ripple effects across multiple segments. Ashford has been fighting with its larger shareholders, which lead to offering 126 million shares; a highly dilutive event. This week, Cygnus Capital, one of the largest shareholders of Ashfordcalled upon the company to eliminate the exchange. Since it wasn’t able to obtain enough votes in the eyes of Cygnus. The proposal to issue these shares was technically approved by stockholders. But based on the lower threshold, the proposal to amend the company’s corporate charter, which, if passed, would force the conversion of all preferred stock into common stock, did not receive enough votes.
Needless to say, there’s a lot of concern right now with regard to the intentions of Ashford management. Cygnus explained that it believes the company isn’t being run for shareholders but rather “as a fee conduit to Chairman Monty Bennett and his family.” Will Ashford manage to reclaim its place among leading luxury hotel management companies? There’s about $20 between where it is and where it was, pre-COVID, so you be the judge on that.
Are you A Buyer Of Blue Chip Penny Stocks?
Whatever your strategy, it’s important to consider the risks right now. The reasons that these companies are traded this low has much more to do with fundamental shortcomings than anything else. Lack of attractive capital, bankruptcy, and restrictions to operate freely are all big hurdles for these companies. If you’re looking to invest in penny stocks like these, please exercise caution as with all penny stocks.
Keep in mind that most of the former “blue chip stocks” trading this low likely have plenty of clean up to do on their financials. However, just because that might be the case in the long-term, short term day traders are finding new opportunities to take advantage of short-term momentum in these beaten down names.