The investment idea is alluring enough. Step into an undiscovered gem trading for pennies a share, then ride your way to riches once other investors finally figure things out. Penny stocks are the stuff triple-digit-winner dreams are made of.
But in reality, penny stocks are almost always priced in pennies for very good reasons.
If you're itching for something with some explosive growth potential to add to your portfolio, skip the penny stocks. You can find lower-risk options that offer even higher-potential opportunities among the more conventional stocks of the market.
Here are three such better-buy prospects to consider.
1. Boeing will get airborne sooner or later
Talk about bad luck! Just when aircraft maker Boeing (BA -0.84%) was putting its 737 MAX debacle behind it, the coronavirus pandemic took hold, crimping airline companies' demand for new passenger jets. In 2020, Boeing booked an operating loss of more than $18 billion on $58 billion worth of revenue -- revenue that fell 24% year over year. Now with COVID-19 vaccines finally (seemingly) making a dent in the pandemic, a couple of recent major engine failures on its planes are casting a fresh shadow of doubt on the company's portfolio.
Nevertheless, shares are buy-worthy here regardless of the apparent risk. That's because while the air travel industry's and Boeing's coinciding challenges have been miserable, they're also surmountable. It may take years to work all the way through them, but waiting for a full recovery before taking the plunge on any stock may mean you've waited too long.
We're already seeing subtle evidence of this uptick. Airlines Reporting Corp. says ARC-accredited travel agencies booked 23% more trips in January than in December, and airline Emirates reports passenger traffic in December and January was up to 80% stronger than levels from a year earlier, when the coronavirus first began to spread. From a longer-term vantage point, airline industry analyst Embraer believes airline fleets will be 25% bigger just by 2029, while Boeing is still planning on demand for more than 43,000 new passenger jets through 2039.
It may be years before consumer air travel is back to pre-pandemic levels, but it's moving in the right direction. The world is still going to need more airplanes 20 years from now than it has now.
2. Persistent copper demand electrifies Freeport-McMoRan
While the coronavirus pandemic made things tough for most companies last year, mining company Freeport-McMoRan (FCX 0.37%) was a curious exception to the norm. Shares nearly doubled in value in 2020 and are up another 45% so far this year. Revenue fell slightly during the 12-month stretch ending in December, but operating income more than doubled.
How'd that happen? The simplest answer is the world never really stopped needing the company's chief product, which saw its price continue marching higher despite the lousy environment.
Freeport-McMoRan digs up gold and the rare earth metal called molybdenum. Mostly though, it's a copper miner. The miner extracted and sold nearly 1 billion pounds of the stuff last year, selling it at an average of $3.05 per pound. That's 12% better than 2019's average price, although it sold 17% less of it last year than it did the year before.
Here's the part that matters the most to investors now: The company's average selling price during the fourth quarter was $3.48 per pound, putting it at a multi-year high that's close to eclipsing 2011's all-time record of $4.54. As of the most recent look, the soft metal is trading just under $4.20 a pound. Supply just isn't keeping up with demand, and that challenge will only expand if a worldwide economic recovery takes hold.
To be clear, this year's consensus earnings of $2.23 per share and next year's estimate of $2.69 are predicated on more of the same firm pricing. With the stock priced at less than 20 times both year's profit outlooks, though, there's enough value to justify the risk.
3. Chegg is schooling traditional education proponents
Chegg got its start as an online textbook rental resource but quickly graduated to bigger and better things. Online tutoring, help with writing assignments, and even helping students find internships are all part of its revenue-bearing repertoire. Even before the COVID-19 contagion took hold the company was growing like wildfire; the pandemic simply accelerated this growth as parents and students sought out ways to better learn from home. Last year's top line improved 64%, pulling Chegg well into the black with an adjusted profit of $180 million. That's not bad for the relatively young $18 billion company.
Granted, 2020's stellar results are a tough act to follow, and analysts don't expect the company to grow nearly as much now that COVID-19 is abating. The consensus sales growth outlook is 23% for the year underway and 22% next year.
What's largely being overlooked, however, is that Chegg's annual profit growth is expected to accelerate in 2021 now that it's established itself as an alternative resource to conventional education. This year's projected per-share operating profit of $1.65 is 23% better than last year's $1.34, and it's expected to swell to $2.07 for 2022. The stock's still expensive compared to those profit outlooks, but this company is just starting to find its full stride.