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About to Buy Penny Stocks? Look at These 3 Companies First

By Rick Munarriz - Jan 27, 2021 at 9:00AM

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Don't go dumpster diving for your next stock pick.

A rookie mistake for new investors is falling for the penny stock trap. Inexperienced traders flock to stocks fetching pocket change, falsely assuming that they're cheap. More often than not, companies trading for just a few bucks or less fail. Do yourself a favor and aim slightly higher in terms of price, and considerably higher in terms of quality. 

SmileDirectClub (SDC 8.89%), Zynga (ZNGA -2.04%), and China Life Insurance (LFC 0.00%) all trade for less than $12 a share right now, but they're far from speculative penny stocks. Let's see why these are the low-priced stocks that you should be looking at in 2021.

Someone wearing SmileDirectClub's clear dental aligners.

A SmileDirectClub clear dental aligner. Image source: SmileDirectClub.

SmileDirectClub

Next time you're seeing a dentist or cutting a big check for an orthodontist, you may start to wonder how ripe the dental industry is for disruption. What if the rattling was already taking place? SmileDirectClub has emerged as a leading direct seller of clear dental aligners, corrective teeth straighteners that are as effective but more convenient than traditional braces. 

The pandemic was initially rough on SmileDirectClub. Instead of embracing teledentistry to get remote imprints for aligners, folks had other things on their mind beyond fixing their chompers. Revenue plummeted 49% in the second quarter of 2020 after more than doubling a year before. The turnaround started a lot sooner than expected. Revenue dipped 7% in the third quarter, but analysts were bracing for a 19% slide. It also posted a smaller-than-projected quarterly deficit for the first time in more than a year. 

Between stimulus checks and folks saving surprising sums of money during the pandemic, you can be sure that SmileDirectClub will bounce back in 2021. There's probably no better time to fix crooked teeth than when you're spending so much time at home. As a bonus, SmileDirectClub is trading for less than when it went public at $23 in its 2019 IPO. One way or another, SmileDirectClub is going to make you smile this year. 

Zynga 

Mobile gaming naturally hasn't experienced much of a pandemic slump. We're on our phones a lot these days, and that's just fine for Zynga. The casual-gaming company behind Words With Friends, Merge Dragons!, and CSR2 is having no problem wooing folks seeking quick smartphone diversions. 

Revenue climbed 46% in its latest quarter, fueled by a 59% surge in bookings. Zynga also hiked its guidance at the time, even if investors were holding out for more. It should still report another period of strong results in two weeks.

The company has a knack for knowing what entertains large audiences, and if it's not a leader organically, it's not afraid to buy a promising developer or publisher to make it happen. Zynga was attracting 31 million daily active users at the end of September, a 53% ascent over where it was a year earlier. 

China Life Insurance

We'll wrap this list up at the other end of the world with one of the planet's most successful insurance companies. China Life Insurance offers life insurance and annuity products in the world's most populous nation. It had more than 300 active policies at the beginning of last year. 

You don't have to be an insurance whiz to appreciate what China Life Insurance brings to the actuary table. It is consistently profitable, has posted double-digit revenue growth in three of the past four years, trades for eight times trailing earnings, and currently pays a healthy dividend of 4.6%. Investing in China is risky, but here's a high-yielding giant in an industry that isn't likely to be squashed over tech or censorship concerns.  

SmileDirectClub, Zynga, and China Life Insurance trade at low price points, but they're not penny stocks. They are a lot better than penny stocks. 

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Stocks Mentioned

Zynga Inc. Stock Quote
Zynga Inc.
ZNGA
$8.18 (-2.04%) $0.17
China Life Insurance Company Limited Stock Quote
China Life Insurance Company Limited
LFC
$7.28 (0.00%) $0.00
SmileDirectClub, Inc. Stock Quote
SmileDirectClub, Inc.
SDC
$1.47 (8.89%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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