While there are few stocks trading under $5 that I would consider investing in, promising penny stocks are still available.
According to Finviz.com, 3,674 stocks have a market capitalization of $300 million or higher. Of these, 304 have a share price of less than $5, the definition of a penny stock.
Sirius XM Holdings (NASDAQ:SIRI), a penny stock, stands out as a relatively large company. Despite trading at $3.77 at the time of writing, this satellite radio network boasts a market cap of $14.6 billion.
Among the 304 penny stocks, 12 boast a market cap exceeding $10 billion, while another 25 fall between $2 billion and $10 billion.
For this article, I plan to choose one from the above $10 billion group and two from the $2 billion to $10 billion range. Importantly, each selection should be profitable. Consistent with my approach, I’ll ensure they represent three distinct sectors.
Here goes.
Ambev (ABEV)
Ambev (NYSE:ABEV) is a Brazilian beer company controlled by Anheuser-Busch InBev (NYSE:BUD), who own nearly 62% of its stock, and control another 10% through a voting agreement with Fundação Antonio e Helena Zerrenner Instituição Nacional de Beneficência, or FAHZ, the brewer’s second-largest shareholder.
The company, known for beers like Brahma, Skol, and Antarctica, formed from a 1999 merger. A 2004 merger with Belgium’s Interbrew led to InBev, which later merged with Anheuser-Busch in 2008, creating Anheuser-Busch InBev.
Since August 2019, Ambev’s stock has remained under $5. It peaked near $10 in 2013. To profit from capital appreciation, careful timing is crucial. An entry point below $3.25 is ideal.
However, the real draw is the dividend. Typically, a single payment occurs in January. This year, shareholders received $0.1443 per share, yielding 4.6% based on the current share price. For income investors, it’s a great option for allocating some risk-off funds.
Olaplex Holdings (OLPX)
Olaplex Holdings (NASDAQ:OLPX) is a California-based hair care company founded in 2014. Its 15 products provide a holistic regimen for hair health. The company started in the professional market but has since broadened its scope to a more omnichannel business model, adding specialty retail, and direct-to-consumer, to its repertoire.
The company’s stock has plummeted 31% year-to-date and 76% over the past year. A significant factor in its 2023 losses is a lawsuit claiming its products cause hair loss and bald spots, a damaging allegation for a company promoting hair health.
In response, the company released independent third-party laboratory test results, as reported by CNN Business in February. The company stated, “We have full confidence in the safety and efficacy of our products,” attributing hair loss to various factors including lifestyle, medical conditions, and medications.
Despite a significant drop in Q1 2023 results compared to the previous year – with revenue and adjusted net income falling 38.9% and 65.7% respectively – the company remains optimistic about the rest of the year and, crucially, into 2024.
Given its 2023 guidance, the company’s stock trades at 3.9x sales and 11.8x earnings. This valuation is quite low for a brand that has boosted its sales by 150% over the past two fiscal years. By 2025, it aims to reach or approach $1 billion in revenue.
For aggressive investors, this presents an intriguing opportunity.
Baytex Energy (BTE)
Baytex Energy (NYSE:BTE) is a Calgary-based energy company with crude oil and natural gas production in Canada and the U.S.
In February, the company announced it would acquire Ranger Oil (NASDAQ:ROCC) for $2.5 billion, including the assumption of net debt. The company is a pure-play operator in Texas’s Eagle Ford shale basin. It is paying for the acquisition with a combination of stock (70%) and cash (30%).
Baytex is acquiring Ranger for 2.9 times its EBITDA, calculated on $50,000 per barrel of daily production and a $75 barrel of West Texas Intermediate (WTI).
The merger will result in a combined daily production of at least 155,000 barrels of oil equivalent (Mboe/d), 1.7 million net acres, and adjusted funds flow of $2.2 billion.
Upon finalizing the acquisition, which is imminent, Baytex plans to return 50% of annual free cash flow to shareholders. This includes a new quarterly dividend of $0.0225, yielding 2.7% at the current price, and increased share repurchases.
Once Baytex reduces its total debt to $1.5 billion, it aims to boost the free cash flow returned to shareholders to 75%.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.