For those who are willing to stomach the volatility, penny stocks offer an exciting opportunity to get in on the ground floor of tomorrow’s successful businesses.
Here are two that could be a good fit for my portfolio:
Red Cat Holdings
This Puerto Rico-based company produces drone products, technologies and services.
Over the last decade, drones have become increasingly noticeable at parks, on beaches and in other open-space areas.
Aside from the hobbyist drone market, the technology is also being adopted in a range of industries, from videography to weather monitoring, firefighting and even delivery services.
Red Cat Holdings (NASDAQ:RCAT) offers investors a chance to get a piece of the drone market, valued at $100bn in 2020 and growing at 20.5% annually.
Most eye-catching is the company’s ‘drone box’ technology, which is the equivalent of the ‘black box’ on an aeroplane. By tracking drone flight data, the technology allows operators in this nascent sector to comply with growing regulatory demands and more easily qualify for drone insurance.
Then there is Rotor Riot, which is Red Cat Holding’s retail and media arm, which pumps out slick YouTube videos for its 200,000 subscribers, driving customers to its online drone store, rotorriot.com.
Red Cat Holdings is a tiny fish in this sector, and its lunch could end up being eaten by behemoths like Chinese drone manufacturers DJI or Yuneec.
But with year-on-year revenue growth in the most recent quarter up over 300%, from $428,000 to $1.9m, Red Cat Holdings is so far gobbling up market share in this booming sector.
Trading at $2, down over 8% year to date, I would be happy to buy the dip on Red Cat Holdings, which is priced at a reasonable multiple of 12 times trailing sales.
This small-cap pharmaceutical company based in Colorado has seen its stock price rally by over 100% in June, from $0.66 to $1.49, following the publication of positive interim phase 1/2 clinical trial results for one of its patented drugs.
Still, plucky investors can talk about ‘buying the dip’ on Clovis Oncology (NASDAQ:CLVS), as the risk-off sentiment triggered by rising interest rates and high inflation has the company’s share price trading at a 48% discount compared with the beginning of 2022.
Clovis Oncology has two main products:
- Rucaparib, sold under the brand name Rubraca, is a pill for certain types of ovarian and prostate cancers that has been approved for use in the UK, the EU and the US.
- FAP-2286, a radioactive substance that attaches itself to solid tumours for imaging and therapeutic purposes. FAP-2286 has not been approved for use anywhere yet.
On 14 June, Clovis Oncology reported positive results from its phase 1 trial of FAP-2286, leading to a massive jump in its share price.
Further news from the company’s trial of FAP-2286 will likely cause similarly large swings in the price – and new investors could be left with startling losses if the drug’s efficacy is called into question by unfavourable findings.
So far, however, the trial is going well and none of the nine patients given FAP-2286 for solid tumours have had to abandon or cut back their dosage due to side effects, while one of the patients has exhibited a partial response to the radiotherapy drug.