It's easy to understand why some people gravitate toward penny stocks. The thinking goes that companies with microscopic valuations and cheap shares have the potential to post explosive gains in short periods of time. Sometimes, a stock could go up simply from a bit of news coverage, and sometimes, penny stocks jump for seemingly no reason at all.
The reality of this risky investing strategy is much different, however, and the vast majority of companies in the category will wind up leaving investors burned. If you're looking for explosive gains, focusing on small-cap tech stocks that can benefit from major trends is a much better bet. Here's why Glu Mobile (GLUU), Impinj (PI -2.24%), and Himax Technologies (HIMX 1.02%) are great stocks for risk-tolerant investors seeking market-crushing gains.
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Glu Mobile
Glu Mobile is a video game company with a market capitalization of roughly $1.45 billion, and its stock trades at 24 forward earnings estimates. Favorable trends in the gaming industry could help the stock become a huge long-term winner.
More people play video games than ever before, and the industry is on track to continue delivering impressive growth that lifts players in the space. Research from Mordor Intelligence projects that the global gaming industry will grow from $155 billion in annual sales in 2019 to $257 billion in 2025. Billions of people around the world own mobile devices capable of running Glu Mobile's games, and the company's massive addressable market and earnings potential will only increase as more people take up gaming as a hobby and an expanding global middle class facilitates rising spending per player.
Glu has a bankable portfolio of titles, including Design Home, Kim Kardashian Hollywood, and Tap Sports Baseball, which serve as a solid foundation for future performance. The company has avenues to continued growth as it focuses on improving monetization for its core franchises and develops new properties. Look to Glu's competitor Zynga for an example of what's possible when this model is executed correctly.
Zynga had a market capitalization of roughly $2.5 billion just three years ago, but it's now worth over $9 billion and still has plenty of room to run. Glu has the potential to follow in its larger rival's footsteps -- and introducing a single successful new franchise could send the mobile game company's earnings and stock price soaring.
Impinj
The Internet of Things (IoT) is bringing devices that previously had no way of communicating into the world of information networking. The growing number of connected devices and objects is creating an explosion of data, and this information can be sorted and analyzed to discover trends and more efficient ways of doing things that result in productivity gains for businesses.
It's not just traditional tech devices powering the IoT trend -- Impinj is one company that's helping bring non-electronic items into the new age of connectivity. The company designs and manufactures radio frequency identification (RFID) tags that can be placed in objects such as clothing, automobile tires, and airplane bags to allow these objects to communicate and send out data.
The company's main RFID tags can do this without a power source, which means they can have small form factors and be easily placed in items that otherwise wouldn't be sending data to networks. Automobile distributor SAIC Anji Logistics uses aerial drones outfitted with Impinj's RFID-reader technology to sweep through its lots and detect RFID tags on its vehicles. Implementation of RFID technology boosted SAIC Anji's inventory tracking efficiency to nearly 100% and cut the time needed to survey inventory in half.
Impinj's technologies have the potential to enable major supply chain improvements, reduce product theft and counterfeiting, and spur increasingly efficient retail and manufacturing operations. The company has a market capitalization of just $625 million as of this writing, and its valuation could soar as demand for RFID solutions increases.
Himax Technologies
Like Impinj, Himax Technologies is a small-cap semiconductor company that looks poised to benefit from market-shifting trends. The Taiwan-based chip maker specializes in display drivers that regulate the colors displayed on television and mobile-device screens, but business performance has sagged amid declining pricing power in the TV market and stagnating smartphone sales. These categories are somewhat cyclical and are likely to rebound, but Himax's biggest opportunities actually lie in emerging technologies and products that are still at early market stages.
I named Himax as a top alternative to penny stocks in an article published last month. Shares have jumped roughly 16% since then thanks to news that the company is releasing a new artificial intelligence (AI) chipset that's compatible with Alphabet's TensorFlow AI platform. The new AI chips can also interface with Himax's image-sensing chips, and the announcement points to intriguing growth opportunities.
Himax's market cap still sits at just $660 million, and the stock has room to run if it can secure major new design wins. The chances of that happening are underappreciated at present. The company's stock is down more than 50% over the last three years even after the recent rally, and shares purchased at today's levels could go on to deliver huge gains.
Prior to the announcement of Himax's AI chip platform, most investors were looking to emerging categories, including augmented reality, virtual reality, and interactive displays for automobiles, as key growth drivers for the company. Those potential catalysts are all still on the table, and Himax's push into the AI chip space has given the business a promising new path to expansion.
