Investors looking for quick gains are often drawn to penny stocks, the over-the-counter shares of tiny companies that generally trade under $1. Unfortunately, most penny stocks are barely better than lottery tickets. Today, these Motley Fool contributors will highlight three publicly traded stocks that are better bets than penny stocks: Snap (SNAP 9.19%), Goldman Sachs (GS -0.68%), and SolarEdge Technologies (SEDG -1.82%).
A hated social networking stock
Leo Sun (Snap): Snapchat maker Snap went public at $17 less than two years ago. It trades at about $6 today, and only two of its original executives -- CEO Evan Spiegel and CTO Bobby Murphy -- are still with the company.
Snap's dizzying decline was caused by two main factors. First, its sequential growth in daily active users (DAUs) turned negative over the past two quarters, and many analysts blamed the drop on Facebook's (META 5.10%) Instagram, which cloned most of its features and lured away its teen users. Second, Snap remains deeply unprofitable, with a net loss of $325 million last quarter and a negative free cash flow of $159 million.
But on the bright side, Snap remains the most popular social networking platform for U.S. teens by a wide margin, according to Piper Jaffray, and its average revenue per user (ARPU) grew as its DAUs declined. eMarketer also recently reported that the percentage of U.S. marketers buying ads on Snapchat rose from 25% in 2017 to 28.3% in 2018 -- indicating that it isn't down for the count yet.
Snap is also expanding its ecosystem with original streaming videos, new AR lenses and games, a new version of Spectacles, and even a new visual shopping partnership with Amazon.com (AMZN 3.60%). Those efforts could lock in its users and boost its ARPU. Snap remains a hated stock, but it could stage a surprising comeback if it stabilizes its DAU growth, keeps growing its ARPU, and continues to narrow its losses. So if you're looking for a risky bet with lots of upside potential, Snap might be a much smarter play than a penny stock.
Check out the latest Snap earnings call transcript.
Go to the good end of Wall Street
Dan Caplinger (Goldman Sachs): Penny stocks are outright gambles for shareholders, with some going to the moon and most becoming worthless. It's a smarter move to bet on the companies that provide investors with the tools they need to be successful, and Goldman Sachs has a reputation for successfully finding ways to make money in any market environment -- no matter how challenging.
Goldman's most recent earnings report tells just how smart the investment banking giant can be under tough conditions. In the fourth quarter of 2018 -- a period when financial markets were going through volatility the likes of which investors hadn't seen in a decade -- Goldman managed to bring in a half-billion dollars more in revenue than most had expected, and profits topped the consensus forecast by more than a third. Between consistent excellence in the investment banking division and newfound promise in consumer banking, the Wall Street giant is making all the right moves.
At around $200 per share, Goldman is far from a penny stock. But for investors who want to truly invest their money rather than just take a flier on a random pick, Goldman Sachs is a solid choice you can hold on to for the long run.
Check out the latest Goldman Sachs earnings call transcript.
Profitable growth in an important sector
Maxx Chatsko (SolarEdge Technologies): You couldn't tell by looking at the stock chart (shares lost 6% last year and ended the year at half their peak), but SolarEdge Technologies has been growing revenue and profits at an impressive clip recently. In the first nine months of 2018, the business delivered revenue growth of 61% and operating income growth of 104% compared to the prior year. Operating cash flow swelled to $142 million in the most recent nine-month period.
The numbers clearly indicate that SolarEdge Technologies is crushing its niche selling power optimizers and solar inverters that allow solar modules to operate more efficiently. What the numbers don't show is how quickly that niche is expanding. The company has taken advantage of its increasing financial flexibility by making three acquisitions since May 2018. It's also furiously laying the foundation for a robust business in electric-vehicle charging technology, investing heavily in energy storage and backup power products, and building out a portfolio of consumer-facing software tools.
All of that diversification is likely to take a pretty big bite out of Wall Street's primary bearish arguments against the business: solar energy faces no shortage of uncertainty and competition is creeping in on the core business. However, even those expected headwinds didn't materialize in 2018, as the year-over-year growth demonstrates. In fact, solar energy's long-term growth looks pretty unstoppable. Consider that the United States generated 91,600 gigawatt-hours of electricity from solar in the 12-month period ending in October 2018 -- more than double the amount generated just two years prior. As prices continue to fall and efficiency ratings gradually improve, solar is likely to become the go-to power source across the country by the end of the next decade.
In other words, while wile it wouldn't be shocking to see SolarEdge Technologies lose some of its dominant market share in solar inverters -- which stood at 42.5% at the end of 2017, the last time numbers were released -- to increased competition, the size of the overall pie in global solar markets is growing quickly enough to more than make up the difference.
With shares trading at just 11.5 times future earnings and sporting a PEG ratio of just 0.56, this high-growth stock is a great addition to any long-term portfolio.
Check out the latest SolarEdge Technologies earnings call transcript.