The allure of penny stocks is understandable. For literally just a few dollars, you can control hundreds, if not thousands, of shares. And if the stock moves just a nickel or dime higher, you can make a killing that sets you up for life.
Unfortunately, that’s not the way most penny stocks work. They are just as likely (if not more) to be pump-and-dump scams as they are real companies trying to make their way. Often they won’t even have a product or service available. They are just a story, typically about whatever is hot at the moment.
Artificial intelligence (AI) is everywhere. So are companies claiming they will be the next Nvidia (NASDAQ:NVDA). Electric vehicles (EVs) seem to bring out all the lithium miners that will be a future Albemarle (NYSE:ALB). And is gold climbing in value? Watch out for all the miners that spring to life. On second thought, gold-mining penny stocks are always around.
The truth is, if they are not trying to scam you, they are simply a business plan tucked inside a shell company looking to separate you from your money. There is a reason the SEC specifically warns about the risks of investing in penny stocks.
While some low-priced stocks are viable businesses, it is so much easier to find winning investments by sticking with successful, profitable businesses with a proven track record of satisfying customers. The three stocks below are ones primed for multibagger returns.
JD.com (JD)
Chinese online e-commerce platform JD.com (NASDAQ:JD) should head your list of stocks to buy. Shares are down 50% from their 52-week high, but this turnaround story has a long runway of future growth.
The online platform just turned in a strong fourth-quarter earnings report that easily beat analyst expectations. Although China’s economy is slowing and consumer confidence is shaky, JD.com was able to drive tremendous traffic to its site via aggressive price cuts. While that eats into profits now, it will pay off later in customer loyalty. Operating margins fell 40 basis points (bp) from the year-ago figure but were better than the 60 bp decline Wall Street anticipated.
JD is following Amazon’s (NASDAQ:AMZN) game plan of dropping minimum order requirements for free delivery. Although that raised logistics costs, it also helped spur demand. It also reduced its commission fees in a bid to attract new merchants. All of this works against JD stock in the short term. It will pay big dividends for the Chinese e-commerce giant down the road. Coupled with a new $3 billion stock buyback program and JD.com is lining up for multibagger status very quickly.
PayPal (PYPL)
Payments platform PayPal (NASDAQ:PYPL) also had a solid end-of-year report, though its outlook for 2024 was muted. PYPL stock is down 25% from recent highs but 17% above its lows. Long-term, though, Wall Street sees the company expanding earnings by 20% a year, well ahead of the 14% growth PayPal experienced over the past five years.
As an early leader in the payments space, PayPal has a competitive edge but faces growing competition on both the merchant and consumer side. Apple (NASDAQ:AAPL), Block (NYSE:SQ) and Shopify (NYSE:SHOP) all intensified their own efforts at capturing the payments share. Apple Pay and Cash App are notable threats.
Still, PayPal holds an enviable presence in the online arena. The company is witnessing good traction with Braintree, its payments service provider. PayPal could also enhance its positioning in in-person transactions. Venmo remains a popular peer-to-peer transaction option, and PayPal is in the early stages of monetizing it.
PYPL stock may take a little longer to get going but should reward patient investors down the road.
Incyte (INCY)
Biotech Incyte (NASDAQ:INCY) is the dark horse candidate because the market doesn’t recognize the value in its pipeline. Headline drugs like Jakafi for treating myelofibrosis and Opzelura for eczema are still big growth drivers.
In particular, Jakafi won’t lose patent protection for another four years, although there are different myelofibrosis therapies on the market. Swedish Orphan Biovitrum’s (OTCMKTS:SWOBY) Vonjo and GlaxoSmithKline’s (NYSE:GSK) Ojjaara have yet to hurt Jakafi sales, which came in at $2.6 billion last year, an 8% increase. Incyte projects as much as $2.75 billion in sales in 2024.
Because the biotech has $3.65 billion in cash and equivalents available to it, the opportunity to pursue mergers and acquisitions as the Jakafi patent cliff approaches will intensify. Moreover, because Incyte can partner the therapy with other treatments in clinical trials it could stave off generic threats. It will enter a phase 3 trial later this year combining Jakafi with zilurgisertib, an ALK2 inhibitor. Other pairings could improve Jakafi’s efficacy for already-approved indications.
The market might be distancing itself from INCY stock, but that gives savvy investors a chance to buy in at a better price on their way toward multibagger gains.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Rich Duprey 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.
