There are few easier ways to lose your money in the stock market than with penny stocks. Fortunately, there are many legitimate stock investments that have the upside potential that penny stock investors often crave, but without nearly as much downside risk.

With that in mind, if you are considering a penny stock investment, our contributors think you should take a look at Square (NYSE:SQ), American Express (NYSE:AXP), and GreenSky (NASDAQ:GSKY) instead.

A jar of pennies surrounded by more pennies.

Image source: Getty Images.

Huge upside in several different businesses

Matt Frankel (Square): To be perfectly clear, there are literally thousands of stocks that are better options than putting your money into penny stocks. However, one that does a great job of achieving the central goal of penny stock investing (lots of potential for growth) without the high-probability of losing all of your money, is rapidly growing fintech company Square.

Square has several high-growth business segments, all of which have tremendous potential. Just to name some of the big ones: Square's core business of producing disruptive payment-processing hardware continues to grow at a rapid pace. The gross payment volume through Square's platform grew by 30% over the past year, and still represents a small fraction of all card payments made in the U.S. Plus, there's a ton of room for international expansion -- Square is only in a few countries so far and worldwide card payments are expected to swell to $55 trillion per year within the next decade. If the company can even capture a 5% share of this, it would be more than 35 times Square's current payment volume.

In addition, the company's Square Capital business lending platform could have an extremely bright future. The platform originated $390 million worth of loans to over 60,000 borrowers last quarter, 22% year-over-year growth, but this means that only about 3% of Square's current seller base is taking advantage of its lending.

Finally, the peer-to-peer payment Square Cash app and accompanying Cash Card product could be particularly exciting growth drivers as we continue to transition to a cashless society. Cash Card spending roughly tripled in the first half of 2018, and with a recent U.K. launch, there could be much more room to expand.

In a nutshell, Square is a combination of several exciting high-potential fintech businesses. It offers the upside potential penny stock investors are usually chasing, but without the downsides (like probably losing all of your money).

Don't leave home without it 

Sean Williams (American Express): Once a darling of Wall Street, credit services giant American Express hit one heck of a brick wall in 2015 when it announced that it and longtime partner Costco, with which it had about 1 in 10 of its globally issued cards, were splitting up. Today, AmEx is looking stronger than ever, and it appears to be a much smarter investment choice than a volatile penny stock.

What really stand out about American Express' business model are a few things that won't necessarily show up on the company's balance sheet. In particular, American Express has always been known for targeting a more affluent clientele. Wealthier individuals tend to have a better credit profile, and they're less likely to be adversely impacted by modest contractions in the U.S. or global economy. This allows AmEx to withstand slower-growth environments better than many of its peers.

Another reason to like American Express is its ability to double-dip, so to speak, as a lender and a payment facilitator. During times of economic expansion, AmEx benefits from increased consumer spending, which leads to more loans outstanding and, presumably, higher interest income. This increased consumer activity also leads to higher fee collection. It's a win-win for AmEx considering that the U.S. economy has spent 86% of its time since the end of World War II in expansion mode.

And, of course, it's really easy to like American Express when the company is delivering on the top and bottom lines. Revenue growth in 2018 is expected to be at minimum 9%, with earnings-per-share growth over the next couple of years likely hitting the mid-to-high single digits. All the while, even with the company getting aggressive with its marketing campaign to attract new retail clients and small businesses, its operating expenses are being kept in check. Tack on a recently announced 11% quarterly dividend increase and a $3.4 billion share buyback through the second quarter of 2019, and you have every reason to leave penny stocks on the shelf. 

A fast-growing fintech

Jordan Wathen (GreenSky, Inc): Investors who like the high-risk, high-reward proposition of penny stocks may want to take a look at this busted fintech IPO.

GreenSky is an interesting twist on the consumer lending industry. It makes its money by connecting small businesses that want to offer financing to their customers with regional banks that are hungry for high-yielding loans, collecting a fee (roughly 7% of the loan amount) for acting as the middleman.

Contractors like it because they can use financing offers to convert prospective customers into buyers. Regional banks like GreenSky because it helps them build a loan portfolio without substantial investments in their own operations. 

With fewer than 13,500 merchant partners at the end of the most recent quarter, GreenSky has only scratched the surface of the consumer lending business. In the most recent quarter, the company reported that transaction volume grew 36% year over year.

Shares trade at roughly 27 times the midpoint of GreenSky's earnings guidance for 2018, and that's no small multiple for a loan originator and servicer. That said, given its aggressive investments in driving growth (its sales and marketing headcount increased 14% in the last three months), one can easily make the case that its earnings power would be substantially higher if not for large investments to add more merchants to its platform.