Top 3 Cheapest Penny Stocks to Buy Now? (2019 Review)

Let me say this now: penny stocks are for speculators only.

Even the cheapest penny stocks make for the worst securities in the stock market. Penny stocks offer ownership positions in companies that have extremely low chances of success.

Penny stocks also have a higher chance of being manipulated via fraudulent means, and having fraudulent individuals behind them.

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The only exception to this rule are stocks that have been sold off to very low prices because of something involving the company itself, or a huge selloff in the stock market as we saw in the financial crisis. During that period, many legitimate companies saw their stocks get sold to extremely low prices.

Otherwise, I have never seen a penny stock company actually become successful and escape penny stock status.

You can bet that there are many enforcement actions initiated by the Securities and Exchange Commission against penny stocks.

Penny stocks should be avoided entirely by all but the most experienced traders.

So while I will make three suggestions of the cheapest penny stocks in the market, I am not suggesting you buy these.

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I am only suggesting you carefully investigate to see if they are worthy of further due diligence, because each of these appear to be legitimate companies that have fallen on hard times.

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The Cheapest Penny Stocks For 2019

If you’re in a hurry, below are suggestions for further due diligence and careful examination for the cheapest penny stocks as of this writing.

  1. Chico’s FAS:A legit company with a huge store base and cash on hand.
  2. Francesca’s Holdings: Very low valuation with cash in the bank.
  3. Ascena Retail Group: Turnaround team is having some success.

Keep reading and you’ll find out more about the cheapest steel stocks and my thoughts on each.

What are penny stocks?

Penny stocks are officially stocks that trade for a price of under $5 per share, as defined by the SEC. To most investors, though, they are companies whose stocks trades under $2 and have questionable business prospects.

The SEC has issued many warnings and specific rules about penny stocks, as well. Your broker has to vet you as a penny stock trader, just to start.

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Read Also: What are the differences between stocks and forex?

How Do You Determine What Qualifies As The Cheapest Penny Stocks?

The cheapest penny stocks that are worth any time at all,have at least two of these three characteristics:

  1. A legitimate business that’s fallen on hard times
  2. Enough cash flow to last a year
  3. No debt

A legitimate business

I would never get involved in a company that goes public and whose share price is low enough for it to be considered a penny stock. That’s because it can be one of the cheapest penny stocks in the market, but if it went public without any real operations or revenue, I consider it a scam.

The only penny stocks I’d even consider are legitimate businesses with a long operating history that is in the midst of a major struggle.

Most of the time, these will be retail clothing companies, or some form of specialty lender.

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Read Also: What’s the best retail stocks?

Enough cash flow for a year

You may have found the least expensive penny stocks in the market, but investing in them won’t matter much if they go bankrupt.

Chances are, the companies behind those penny stocks ended up as the cheapest penny stocks because their cash flow dried up. Thus, in order to stay in business they’d better have either enough cash flow to pay ongoing expenses for at least a year, or enough cash on hand to pay those expenses.

No debt

The one thing that will kill a company that is struggling to hang on is debt. If you’ve been paying attention to Sears, you know that a company can be seized by its debt holders (creditors) if it cannot pay off its debt, or interest on that debt.

So if a company is carrying long-term debt, or short-term debt that is about to come due, it’s best to just stay away.

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Here’s a video that gives additional information on investing in penny stocks, and how to spot penny stocks that are fraudulent businesses.

Chico’s FAS

What is it?

Chico’s is a good example of a strong business that didn’t keep up with the times. It offers women’s casual-to-dressy clothing, intimates, and accessories, under the Chico’s, White House Black Market, and Soma brand names.

Chico’s branding is used to sell to women 45 years of age or older. WHBM sells clothing and accessories to the 35 years and older demographic. Soma sells lingerie, sleepwear, loungewear, activewear, swimwear, and beauty products also to the 35 and older demo.

But here’s how you know this is a legit business; It has over 1,400 stores.

What makes it a cheap stock?

Chico’s may have fallen on hard times in the big picture, but it still sells over $2 billion worth of merchandise annually. The problem is that its total operating expenses chew up most of that revenue, and has for years and years.

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That being said, Chico’s is still profitable, and has been for some time. It made $99 million in 2017, but only $78 million in the past twelve months. Thus, profits continue to decline.

Still, the stock trades at about 9 times trailing twelve month earnings. Although next year’s earnings are projected to decline, analysts seem to think that five year annualized earnings growth will be 10%.

If that’s true, then Chico’s is arguably one of the cheapest penny stocks in the market, with an actual business.

It does have $53 million in long term debt, but it also has $220 million in cash and investments, so it can afford to have the debt on its balance sheet.

Most importantly, it continues to generate free cash flow of about $130 million and pays out $40 million of it as a dividend.

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Francesca’s Holdings

What is it?

Francesca’s is a chain of retail boutiques that sells apparel, jewelry, gifts, and accessories, aimed at women between 18 and 35 years of age. Apparel includes things like sweaters, wraps, jackets, dresses, bottoms, shirts, and intimates.

On the accessories side, we’re talking shoes, hats, belts, sunglasses, handbags, watches, and hair items. The gifts division refers to candles, fragrances, and bath and body products.

Francesca’s has about 750 stores spread around much of the country.

What makes it a cheap stock?

Francesca’s used to be a fairly hot destination for accessories, and five years ago, the stock traded at $22 per share. Today, it’s down to $1.50 per share.

Revenues have actually been fairly stable over the past few years, although the $487 million of 2016 has given way to $450 million in the past twelve months.

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And like Chico’s, Francesca’s actually does make money, although net profit has been decreasing. $42 million of profit in 2016 is down to just a mere half million dollars in the past twelve months.

Still, for those seeking the cheapest penny stocks, it’s worth nothing that Francesca’s has $23.3 million in cash, and no long-term debt. It does just barely generate some operating cash flow so expenses are paid for.

The entire company is valued at $54 million, so even a modest turnaround could lift its valuation.

Ascena Retail Group

What is it?

Ascena Retail Group is the parent company of ANN TAYLOR, LOFT, JUSTICE, LANE BRYANT, MAURICES, DRESSBARN, CATHERINES, DRESSBAR, and 6th & LANE, and MAURICES IN MOTION. Together, it has almost 5,000 stores in the United States.

What makes it a cheap stock?

Women’s retail has one thing going for it that is different from other forms of retail. Most women I know will buy clothing online, but many prefer to visit stores. They prefer to see what that actual product looks like, and what it looks like when worn by them. In other words, they’re smart. There are also studies that show that 75% of women prefer to shop in stores. Brands come to life in stores. That’s especially true of outerwear.

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The company is struggling and trades for $2.92 per share. However, it is backed with $6.5 billion in annual revenues.

In the last twelve months, operating income was a little over $153 million, which was more than the $115 million spent on debt service.

It has free cash flow of over $90 million. It also has $240 million of cash on hand. So Ascena is holding its own. A turnaround team has been brought in, and all of these metrics have been improving.

After falling from a high of $22.50 five years ago to $1.75, the stock did surge to the mid-$4 range earlier in 2018. Optimism has since waned, but all the pieces are here for a speculative situation, if you believe the company can be turned around.

Just be aware that, while it is covering its debt service, it does carry $1.33 billion in long term debt.

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