Some left-for-dead penny stocks are now billion-dollar companies, thanks to the rally in the S&P 500 and other indexes. But that doesn’t mean you should buy them.
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Seven stocks in the S&P 1500 and S&P Completion Index — including energy firm Antero Resources (AR) and tech plays Marathon Patent Group (MARA) and Riot Blockchain (RIOT) — are now valued at more than $1 billion, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
It’s an amazing rise from the coronavirus-crash wreckage. All these stocks traded for just pennies a share when the S&P 500 hit rock bottom on March 23, 2020.
Experienced growth investors know to stick with stocks trading for $10 or more. But such huge jumps show how euphoric investors are jumping into some cheap stocks in various sectors and pushing them to impressive levels.
People Playing The Penny Stocks
Such small-priced stocks are starting to make a big-time influence on markets. Some suspect many new investors are gravitating to cheap stocks and penny stocks.
Earlier this week, trading in a handful of stocks trading for less than a dollar spiked to a fifth of U.S. volume, says Themis Trading data cited by Bloomberg News.
And just this year, stocks trading for less than a dollar a share are up an average of 45%. That’s much more than the S&P 500’s 1.1% year-to-date gain. Stocks trading for $100 or more are only up 4.8% this year, on average, so far.
Beware Penny Stocks
You don’t have to dig much, though, to know these stocks are highly speculative.
None of the seven billion-dollar babies is listed on a major index like the S&P 500 yet. And all six lost money the past 12 months on an adjusted earnings-per-share basis. A few, like Riot, posted less than $10 million in revenue the last 12 months. That’s next to nothing.
And yet you won’t see many people holding the shares complaining now. Riot, which says it’s involved in red-hot digital currency mining, is up more than 3,700% since its March 2020 low. At that time, the stock traded for just 67 cents a share. Now, it’s worth $25.78 a share, giving the company a valuation of nearly $2 billion. That’s larger than 14 stocks in the S&P Mid Cap 400 Index.
Similarly, Marathon Patent jumped into the cryptocurrency game. Shares are up more than 4,800% from last March. That gives the company a nearly $2 billion valuation, too. The stock is trading for 22.39 a share now.
Rising From Energy Sector Pain
Companies in smacked-down sectors that didn’t fail have found investors willing to step up and buy. That’s especially true in the battered energy sector.
Two of the seven in the billion-dollar club hail from the energy sector. That’s not all that surprising, if you figure the S&P 500 energy sector is the best of 2021 so far, by far.
Take Antero Resources. The NYSE-listed oil and natural gas company in Denver is now worth $2.2 billion, or 7.26 a share. That’s up 800% from the 81 cents it was worth in March 2020.
Never mind that analysts think the company will lose an adjusted $100 million, or 37 cents a share, in 2020. To be fair, the company is seen making 15 cents a share in 2021.
Again, savvy investors know to stick with higher-priced, quality growth companies like those on IBD’s Leaderboard. Many cheap stocks stay that way (or worse).
But it’s still telling to see so many people turning pennies into billions. Pros know how this movie usually ends.
Pennies To Billions
Former penny stocks in the S&P 1500 and S&P Completion Index worth $1 billion now:
| Ticker | Stock price at 2020 low* | Stock price now | Market value (in billions) | % change from 2020 low | Sector | |
|---|---|---|---|---|---|---|
| Antero Resources | (AR) | 0.81 | 7.28 | $2.2 | 800.1% | Energy |
| Marathon Patent | (MARA) | 0.45 | 22.39 | $1.8 | 4,876% | Information Technology |
| Riot Blockchain | (RIOT) | 0.67 | 25.78 | $1.7 | 3,752% | Information Technology |
| Bionano Genomics | (BNGO) | 0.43 | 8.42 | $1.5 | 1,858% | Health Care |
| Globalstar | (GSAT) | 0.26 | 0.87 | $1.5 | 238.3% | Communication Services |
| Kosmos Energy | (KOS) | 0.70 | 2.73 | $1.1 | 290.2% | Energy |
| Curis | (CRIS) | 0.68 | 12.80 | $1.1 | 1,792% | Health Care |
Sources: IBD, S&P Global Market Intelligence, * – from March 23, 2020 coronavirus crash low
