The idea of investing a few dollars and seeing them grow into a fortune is simply too tempting to resist. And that is precisely the reason why most novice investors fall for penny stocks. But barring some exceedingly rare exceptions, investments in penny stocks almost always lead to losses in the long term. So, if you're feeling lucky, here are three stocks that are far better bets than most of the penny stocks out there. These stocks will provide you much better returns at relatively lower risks.
Sirius XM
For more than two decades, Sirius XM Holdings (SIRI) and its predecessors have been entertaining a dedicated and growing base of listeners. The company has come a long way from the cash crunch it faced in 2009, growing its customer base, revenue, and operational cash impressively over years. Sirius XM's subscriber growth over the years shows that the monopolist satellite radio operator has been able to keep itself relevant even during the era of streaming and on-demand services.
Data by YCharts.
A nationwide footprint makes satellite radio the users' preferred choice in cars. Around 78% of new cars sold in 2020 had Sirius XM radios in them, up from 73% in 2019. Despite the impact of the pandemic on car sales, Sirius XM grew its subscriber base by 909,000 or 3% last year, while also growing its average revenue per user. The company's Pandora segment also grew its self-pay subscribers by 2%. What's more, nearly 80% of the company's revenue is subscription-based, which tends to be far more resilient compared to advertising revenue.
The only risk the company faces is possibly slower subscriber growth than what it has seen historically due to increased options available to users today. But it looks well placed to grow, even if at a slower rate, mainly due to its model of offering satellite radios as a factory-installed feature in the majority of new cars sold in the U.S.
Sirius XM is also looking at acquisitions to fuel growth. After Pandora, the company acquired podcast producer Stitcher last year. It is also returning value to shareholders through share buybacks and dividends. The company raised its dividend by 10% in November, representing its fourth consecutive year of dividend growth. Sirius XM stock is trading at an attractive forward P/E ratio of 22. At little above $6 apiece, Sirius XM stock is surely a far better bet than any penny stock right now.
Kinder Morgan
Energy stock Kinder Morgan (KMI 0.27%) may look like a boring dividend stock for income investors. But in addition to a juicy 6.3% yield, the stock offers attractive growth prospects. After increasing its dividend by 5% last year, Kinder Morgan plans to increase it by another 3% this year. In the long term, the demand for natural gas is expected to grow steadily, providing growth opportunities to the company, which is one of the largest natural gas pipeline operators in the U.S.
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Kinder Morgan is open for acquisitions to fuel growth in its natural gas transport business if it finds attractive assets in the market. What could be another interesting growth avenue for Kinder Morgan is the clean energy space. The company is exploring possibilities of providing blending and transport services for renewable diesel in the near term. Moreover, years from now, it is open to exploring opportunities in hydrogen transport, if it makes economic sense. The company's huge footprint positions it well to benefit from such potential opportunities.
At less than $17 per share, Kinder Morgan stock offers a steady dividend income in addition to attractive growth prospects. It's far more appealing to get paid while you wait for this story from an established company to play out, rather than losing money on penny stocks.
ReneSola
Solar company ReneSola (SOL 8.88%) is involved purely in the development of solar projects after it exited panel manufacturing in 2017. Renesola is more focused on the profitable U.S. and European markets, although it has projects in around 10 countries.
Renesola continued to remain profitable for its third consecutive quarter with a net profit of $2.5 million in the fourth quarter of 2020. However, its adjusted profit fell to $100,000. The company's revenue and gross margin also fell for the quarter. Though that looks bad, the fall in revenue can be largely attributed to the lumpiness associated with projects' sales.
For the full year, Renesola's gross profit margin stood at a healthy 23.2%. The company attributed the fall in its full-year revenue to the timing of project sales. It also reported negative cash flow from operations for the full year, again due to a delay in collection of proceeds from certain project sales.
Renesola expects to grow its revenue by nearly 30% in 2021 with gross margin of over 25%. It also expects to continue being profitable in 2021. If Renesola delivers results in line with the expectations, its stock price will likely rise. The company has a late-stage project backlog of around 1 gigawatt.
Renesola faces stiff competition from other project developers, some with far bigger operations. However, with its attractive projects backlog and capital-light model, the company can potentially be a key player in the solar project development space. The stock is 67% off its year-to-date high and is trading at a forward P/E of 29, compared to a forward P/E of 75 in January. At less than $11 per share, Renesola looks like a far better bet than most penny stocks right now.
