Should You Start Buying Penny Stocks Right Now?
There’s a sea of red this week that includes penny stocks and higher-priced names alike. Is this it? Have we officially reached the top? Are we going into a bear market? Why is the stock market down today?
I get it; all of these are valid questions and ones that plenty of others are asking. A unique mix of economic data, speculative concern and generally shaky sentiment has led to a continuation in last week’s selling pressure. There was a brief bit of reprieve to start March. But aside from that, the bears are winning the fight this week—most markets sold off yet again on Thursday. The S&P, Dow, Nasdaq, and even small-cap ETFs were well off of their weekly highs. Adding fuel to the fire was the jewel of this week’s stock market news: Jerome Powell speaking on the economic outlook.
In his commentary, Powell addresses everything from the economy reopening to how it could translate to market activity. One of the linchpins recently was the potential for inflation to become a factor. We saw an early rotation out of growth and into both cash and value investments. Powell, however, explained that “We’re very mindful, and I think it’s a constructive thing for people to point out potential risks. I always want to hear that. But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.”
Against this backdrop, concerns continue emerging with resulting bearish pressure in the market. But as we pointed out earlier this week, not all penny stocks have felt the brunt of this broader sell-off. In fact, many have reached fresh highs. Will that remain the case? We’ll have to see how this all plays out but in the meantime, for those asking if penny stocks are worth it, here are 3 names going against the grain right now.
Best Penny Stocks To Watch Today
- W&T Offshore (NYSE: WTI)
- QEP Resources (NYSE: QEP)
- Centennial Resource Development (NASDAQ: CDEV)
- Transocean Limited (NYSE: RIG)
You may look at the above list of penny stocks and see something similar among these names. Two of them are oil and gas stocks, and the other is a commodities shipping company. One of the stronger sectors in the stock market today, energy has been a bright-spot for traders.
OPEC+ decided to keep production levels low, which signaled a green light for oil prices. In fact, if you look at the Light Sweet Crude Oil Futures, these reached a fresh, 52-week high of $64.86. Furthermore, something potentially encompassing all three of these companies are expectations on gas prices.
“The outcome of today’s OPEC meeting lends to a running of the bulls in oil markets, as global oil demand rebounds amidst recovery in the COVID-19 pandemic while OPEC, which controls a third of global production, balks at the recovery and maintains extreme production cuts,” said GasBuddy’s Patrick DeHaan. “American motorists [are] filling their tanks at the fastest pace since the pandemic began.”
Right now the disconnect between energy markets and broad secular trends is clear. Does this suggest that these may be penny stocks to buy or is the sell-off set to come into play soon for these bullish names?
Oil & Gas Penny Stocks To Buy [or avoid]: W&T Offshore
Shares of WTI stock shot up huge on Thursday. This move came just a day after the company reported its latest earnings results. The oil and gas company beat on both EPS and sales. Most notably, W&T reported a loss per share of 5 cents. Though this was the case, the same year-ago period saw a loss per share of 31 cents. Sales came in at $94.75 million compared to $81.3 million.
As far as its production guidance, W&T expects 38,000 to 42,000 barrels of oil equivalent per day in 2021. The company also expects Q1 production of 1.22 million to 1.35 million barrels and 10.7 to 11.8 billion cubic feet of natural gas.
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Tracy W. Krohn, W&T’s Chairman and Chief Executive Officer commented that”Entering 2021, while market and pricing conditions are improving, our strategy remains unchanged. We have assembled a premier portfolio of conventional, low-declining producing properties that generate a solid foundation of cash flow with significant upside.”
Shares of QEP also surged on Thursday, which continued a multi-month rally that began in late-October. In fact, since October 3th, QEP stock has climbed nearly 350% so far. It also reached a fresh, 52-week high of $4.13. The strength in the underlying oil and gas industry has helped propel momentum in the stock for months.
Similar to W&T, QEP reported strong year-over-year results for the quarter. Its loss per share came in at 4 cents compared to a loss of 10 cents per share in the same quarter in the previous year. Sales, however, came in much lower at $200.2 million compared to the previous year’s quarterly sales of $321.9 million.
Something else to consider with QEP is the company’s pending merger deal with Diamondback Energy Inc. The plan is for QEP to get acquired in an all-stock transaction. The expectation on the timing of this deal is late in the first quarter of this year. Considering we’re in the final days of the final month of the quarter, that could also become a source of speculation if it hasn’t already.
Centennial Resource Development Inc.
CDEV is another penny stock that we’ve been covering over the past few months. During that time, investor interest in resource-based penny stocks has jumped dramatically. Since the beginning of March, CDEV has seen mixed emotions from traders. To understand why we have to take a look at the factors that are impacting Centennial right now.
As a company based in the oil and gas sector, Centennial Resource Development is highly correlated to any industry moves. Furthermore, Analyst Leo Mariani at KeyBanc upped his price target for CDEV from $4 to $5 per share. Outside of this, oil prices have advanced slightly, resulting in certain gains around the industry. At over $5 as of March 4th, CDEV is working its way out of penny stock territory.
In its Q4 report posted a week or so ago, the company managed to increase its liquidity to $340 million from $297 million in the previous year. Given that CDEV stock is heavily tied to the energy industry, it is also undoubtedly correlated to the pandemic. Because the pandemic has resulted in a massive dive in energy consumption, Centennial has had to work hard to stay on top. But with vaccine distribution reaching new highs every day, the hopes are that travel could resume soon. If this occurs, demand for oil and gas could rise, leading to more interest in companies like CDEV.
Shipping Penny Stocks To Buy [or avoid]: Transocean Limited
Since the end of October, shares of Transocean have also been on a tear. The shipper stock was trading around $0.65 as of October 30th and has since rallied to new 52-week highs of $4.24 this week. This move was likely sparked by the thought of the “reopening trade” becoming a bigger focus heading into the new year. What’s more, this 552% move was also fueled by the progress made by the company’s milestone developments. One of these was the company’s current contract backlog. In its quarterly report late last month, Transocean said that this was valued at $7.8 billion as of the February 2021 Fleet Status Report.
President and Chief Executive Officer Jeremy Thigpen explained that “In the face of unprecedented challenges, we generated revenue efficiency of 97%, clearly demonstrating our commitment to delivering reliable and efficient operations for our customers, while keeping personnel on our rigs healthy and safe.”
Thigpen also pointed out that the company generated over $1 billion in EBITDA, which further boosted the company’s liquidity position. “The increasing list of opportunities on the horizon bode well for an improvement in contracting activity later this year and into next.”