Penny stocks finished strong last week. Investors rotated into technology helping the Nasdaq Composite post its best daily performance since March 2021.
Unfortunately, it wasn’t enough to offset the weakness from earlier in the week and the index finished lower for the fourth straight week.
Hopefully, the momentum carries through the week when the market will have a potpourri of economic data and retail earnings to sort through.
On Wednesday all eyes will be on the Federal Reserve. It will be releasing minutes from the Federal Open Market Committee (FOMC’s) April 27-28 meeting. The FOMC is the group within the Fed that calls the shots on interest rates and other forms of monetary policy like asset purchases.
It may seem unusual for a meeting from weeks ago to matter but it does. This is because the FOMC minutes often contain language that the market interprets as clues to the Fed’s future moves. Bullish rhetoric about the economy can cause the market to speculate that a rate hike is coming. Bearish language could actually excite the market because it may mean further monetary support is on the way.
Concerns over inflation and rising interest rates have held the market back in recent weeks. While strong economic activity is a good thing, it often comes with the worry that the Fed will raise rates. Higher rates designed to slow the economy and have the effect of lowering stock valuations.
The other weapon in the Fed’s tool chest is asset purchases. When the Fed buys bonds it has the similar effect of lowering interest rates to support an ailing economy. Some say it’s about time for the Fed to start paring back its asset purchase program to get rising inflation and rates under control.
First-quarter earnings season is winding down. A bunch of retail companies will report this week which should give us a sense of consumer strength.
Absent major earnings reports and CEO outlooks, the market direction will likely be determined by more of the same in the coming weeks—inflation, rates, and Fed commentary.
If the market likes what it hears, it may stay in the risk-on mode we saw to close last week.
It has been risk-on in the OTC markets to start the week. This is good news for penny stock investors that are hoping the OTC Composite will return to its record peak from earlier in the month.
There has been some heavy trading going on in a bunch of Big Board and penny stocks this week. Let’s take a look at some of the most compelling moves.
PENNY STOCKS TO WATCH #1 ARPO
ARPO is a $88 million COVID-19 play. At its roots, the company develops treatments for ocular disease and vascular stabilization. Like many biotechs, ARPO pivoted to developing a COVID-19 treatment last year.
The stock shot up after the company announced a merger with privately held Aadi Bioscience. It is focused on mTOR-driven diseases which are associated with a type of protein found in the human body.
The deal is a reverse merger. Aadi Biosciences will be the name of the new company and Aadi shareholders will own roughly two-thirds of the stock.
ARPO is engaging in a $155 million PIPE financing that is expected to take place when the merger is completed next quarter. PIPE, or private investment in public equity, financing has become a popular way for firms to raise money because the regulatory burden is lighter. This allows capital to be raised faster.
The money will be put towards the commercialization of Aadi’s lead product candidate Fyarro. This will be the focus of the new company. Fyarro is an mTOR inhibitor bound to human albumin that is being studied as a potential treatment for patients with solid tumors.
In conjunction with the merger news, ARPO reported a first-quarter net loss of 9 cents per share that topped expectations by a penny. It exited the quarter with $39 million in cash, a good amount considering its market cap.
Yet it was the reverse merger news that got traders buzzing on social media. ARPO jumped 43% on May 17th. Trading volume was more than 50 times the stock’s 90-day average volume.
The hype party well into the night. After-hours, ARPO released data for its experimental COVID-19 drug razuprotafib. It said that the drug protects against blood clotting caused by COVID-19.
Although the study has yet to be peer-reviewed, it was a positive development for a company that has faced some adversity with its COVID-19 drug. In March, the sponsor of the razuprotafib, Quantum Leap Healthcare, stopped the trial because a large number of patients experienced hypotension or low blood pressure.
So, in ARPO, investors are now getting exposure to the oncology space in addition to the company’s COVID-19 candidate. The COVID-19 part is a bit of a crapshoot, but in Aadi’s Fyarro, ARPO now has a promising cancer candidate. This both reduces its risk profile and enhances its growth opportunities.
Based on the sudden interest in the stock, look for ARPO to set a new 52-week high in short order.
PENNY STOCKS TO WATCH #2 FRSX
InsiderFinancial readers may recognize FRSX. We wrote about the autonomous vehicle play back in January 2021 when it was breaking out in huge volume. That story can be found here.
At the time FRSX announced a pilot project involving a major Japanese automaker to test its Eye-Net Protect accident prevention technology. This got people buzzing about the mystery partner. While we still don’t know who it is, we do know the pilot is progressing.
In March 2021, we got details from the first part of the program. The intelligent transport system division of the Japanese automaker deemed Eye-Net Protect a potential solution for the safety traffic component of its smart city project.
This sparked a temporary rally in FRSX, but with the technology’s adoption not yet confirmed, investors soon lost interest in it. Within three months, FRSX shed roughly two-thirds of its market value.
There have been some positive developments outside of the Japanese smart city opportunity. On March 19th, it signed its first commercial agreement with SaverOne, an Israeli safety equipment company focused on cell phone distracted driving. This is to have Eye-Net Protect integrated in a SaverOne product that prevents the driver from using texting apps while the vehicle is moving.
Earlier this month, its Rail Vision affiliate signed an agreement with Hitachi Rail STS Australia. This is to supply a prototype of its Collision Avoidance System to Australian rail company Rio Tinto Railway Network as part of a proof-of-concept project. Rio Tinto Railway Network operates the world’s first autonomous heavy-haul rail network. FRSX only owns a 19% stake in RailVision, but if the project is successful it could eventually turn into a solid revenue generator.
While there haven’t been any press releases since the May 5th Rail Vision news, that hasn’t prevented investors from bidding up FRSX this week.
The stock climbed 28% on May 17th in above-average volume. Much of the chatter on Reddit and elsewhere was about FRSX being undervalued and speculation of a deal related to the Eye-Net Protect’s potential integration with the Japanese smart city project.
Some are now saying Toyota is the unknown Japanese automaker. This hasn’t been confirmed, but if true, would do a lot to legitimize the company.
With the rumor mill starting to heat up, FRSX is one to keep a close eye on.
PENNY STOCKS TO WATCH #3 IDEX
IDEX has been one of the most popular ‘buy the dip’ penny stocks and a regular on the Robinhood 100 list.
It has also been a regular topic at InsiderFinancial where we’ve highlighted the company on several occasions. Most recently we discussed the company’s undervalued nature factoring in all of the value-added acquisitions including WAVE and Timios Holdings. That article can be found here.
IDEX is creating a bit of a stir again this week after announcing another acquisition. This time is it buying privately held US Hybrid, a California-based clean transportation technology provider. US Hybrid makes zero-emission powertrain components for electric, hybrid, and fuel cell commercial vehicles. IDEX will not only use the technology in its own fleet but be able to scale the US Hybrid business using its Mobility solutions.
Alf Poor, CEO of IDEX stated, “The acquisition of US Hybrid is a significant one for our EV efforts across the Ideanomics Mobility division and is the stepping-stone we were looking for to ensure we provide vehicles and technologies that can proudly allow us to state the meaningful components are Made in America.”
A few days later IDEX reported strong first-quarter performance. Revenue came in at $32.7 million, well ahead of the $25 million consensus. The flat bottom-line result also surpassed the expectation of a small loss. The double beat was nice, but more importantly, IDEX exited with $356 million in cash. This can be used to advance its Mobility platform and make additional acquisitions.
It is good to see solid contributions from the newly acquired WAVE and Timios businesses. The Timios title and escrow business beat the revenue estimate by itself and accounted for 84% of revenue. As the core charging and battery business get off the ground, IDEX should have a well-diversified business model on its hands.
IDEX is looking more like a player in the commercial electric vehicle these days having assembled a good mix of complementary revenue sources to complement its core technology. The WAVE wireless charging should develop into a strong contributor as the commercial EV market kicks into high gear.
According to research firm Markets and Markets, the global commercial EV market will grow at a 41% annual rate over the next eight years. Supported by government incentives and mandates around carbon emissions, more than 2 million commercial EVs are expected to be sold in 2028 compared to an estimated 129,000 last year. This means that there will be rapidly increasing demand for vehicle procurement, financing, and energy management solutions such as those offered by IDEX.
The Capital side of the business has equally compelling growth prospects stemming from growth in the fintech industry. Banks and other financial institutions are still in the early stages of investing in IT solutions that give them a leg up on the competition. There is no shortage of players in this space, but IDEX’s disruptive offerings should give it a chance to grab a piece of the action.
The short volume ratio has been on the rise in the last several days. It hit 28% on Monday compared to 9% just five trading days prior. Is another short squeeze in the works?
The long-term story is solid on this one, so buy-and-hold investors can sit back and enjoy the EV ride. In the near term, IDEX may be charging back up for another run.
PENNY STOCKS TO WATCH #4 SNMP
SNMP is a micro-cap clean energy infrastructure stock that trades on the Big Board.
It is a limited partnership (LP) focused on lower-carbon energy infrastructure. This includes natural gas gathering systems, pipelines, and processing facilities located in southern Texas.
The stock is on the run after announcing a new $750 million sustainable infrastructure joint venture with Nuvve and Stonepeak.
Dubbed Levo Mobility, the project will look to deploy turnkey EV charging and transportation-as-a-service (TaaS) for school buses and other commercial fleets. SNMP owns a proprietary vehicle-to-grid (V2G) platform that is managed by Stonepeak. The JV will target thousands of zero-emission buses in implementing its “V2G hubs” and TaaS solutions.
This makes SNMP an interesting play on commercial EV infrastructure and in particular the education sector. Among President Biden’s clean energy ambitions is the electrification of U.S. school buses.
SNMP more than doubled in massive volume on the day of the news. It has since pulled back on profit-taking but appears to have more in the tank. Based on what the stock did in October 2020, the post spike downturn may be setting the stage for a longer rally.
For the long-term investor, it’s never a bad idea to have multiple clean energy stocks in a diversified portfolio. SNMP may be one of the cheapest ways, under-the-radar ways to get that exposure.
As we keep saying, there are always opportunities in the markets and it’s our job to find winning penny stocks for our subscribers. Huge gains can be made in such a short amount of time.
If you like any of these 4 penny stocks, our best advice is to be patient and throw bids in below the market. Buying dips and selling rips as swing trades remains the best strategy.
It’s also important to look for penny stocks that have yet to run. There are plenty of opportunities out there and we screen hundreds of penny stocks each week looking for the best alerts for our subscribers.
Remember, all it takes is one or two to become a winner and you’ve crushed the market indices for the year.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.