It’s been a good week for OTC stocks. With the exception of Tuesday, the OTCQX Composite finished higher each day and closed the week at an all-time high.
Not even a disappointing jobs report could slow the markets down. Friday’s monthly employment data showed that April nonfarm payrolls increased 266K. The figure fell woefully short of economists’ expectations for 978K jobs. The U.S. unemployment rate unexpectedly rose to 6.1% which was above the 5.8% forecast.
The market was in too good a mood to let the employment headlines ruin another week of record highs. The Dow and S&P both rallied to new personal bests.
This was one of those head-scratching moments when bad economic news was good news for the markets. Why would a bummer of a job report be a good thing?
A prevailing area of concern for many investors is inflation. If the recovering economy turns into an overheated economy, higher prices, or inflation, could cause the Federal Reserve to raise rates. This has the effect of cooling down the economy as lending activity slows.
From a stock valuation perspective, higher rates also have a dampening effect on stock prices. That’s because the discount rate used to calculate the fair value of equities sits in the denominator of the valuation equation. As the math nerds among us will recall, when the denominator goes up relative to the numerator, the calculation goes down.
Put another way, in a higher interest rate environment, bonds start to look more attractive. Stock investors demand a higher return for taking on the risk of equity ownership. This required return is a corporation’s cost of capital. An increased cost of capital means companies have a higher hurdle to keep equity investors happy. Unhappy shareholders are sellers and selling puts downward pressure on stock prices.
Any way you slice it, higher rates are generally perceived as bad for the markets.
Getting back to the jobs report, its shortcomings were the market’s gains. It all comes back to interest rates. A weak jobs report equates to a weaker economy which reduces the likelihood that the Fed raises rates. The longer rates stay near historic lows, the better for corporate and consumer lending activity—and the better for stock valuations.
So, in investors’ minds, bad economic news translates to more loose government monetary policy. This is what fueled the biggest bull run in stock market history from 2009 to early 2020. It is also what has helped spur the markets to record levels in the wake of the COVID-19 crash.
In the George Costanza-like world of opposites, sometimes bad economic news is good market news.
Speaking of good news, check out these four penny stocks that are heading into the weekend on a high note.
PENNY STOCKS TO WATCH #1 ERBB
ERBB is one of the more interesting penny cannabis plays. The company has a growing online presence selling a range of CBD products to consumers and wholesalers.
Its latest press release created a buzz on social media. On May 6th, ERBB announced that it signed a five-year lease for a new manufacturing facility in Phoenix. The company thinks that once the operation gets up to full speed, it can generate $10 million in annual revenue. This would be five times ERBB’s current annual revenue.
The so-called manufacturing “kitchen” will make premium edible and concentrate cannabis products. After two years, ERBB will have the option to buy the 35,100 square foot building.
ERBB is throwing everything but the kitchen sink at the cannabis market opportunity. Earlier this year, Arizona voters approved recreational cannabis use and ERBB hasn’t wasted any time in securing a second facility in its home state. If cannabis use is legalized at the federal level, the company will likely go into another gear trying to market its American Green products nationwide.
David G. Gwyther, CEO of ERBB said, “Utilizing every square foot of space strategically and efficiently will be a priority for us as we build out our newest facility. Our prime goal will be to create a state-of-the-art facility designed to exceed our estimate of adding $10 million a year in annual corporate revenues.”
The news sparked a wave of chatter across Twitter and other social media outlets. Penny stock YouTube channel OTC PR Wire posted a video on the news which can be found here.
ERBB rose 17% on the day of the report in good volume.
This was one of the first cannabis companies to hit the public markets. Ten years after its 2009 debut, it had a 1-for-500 split that was soon followed by a big run to $0.25. It then quickly descended into sub-penny territory.
ERBB has been one of the most actively traded cannabis penny stocks since coming to life during the November 2020 election season.
The stock price has been cut in half from its February 2021 peak, but the expansion headline could be the spark that ignites the next rally.
PENNY STOCKS TO WATCH #2 IBIO
IBIO is starting to look like lightning in a bottle.
Volume in the biotech stock has ramped this week and is reminiscent of IBIO’s July 2020 run to above $7.00. A few months prior to this run we featured IBIO as a compelling COVID-19 play. That article can be found here.
The $250 million micro cap is once again flirting with small cap territory after a one-two punch of positive news items this week.
First, it announced it had resolved a longstanding lawsuit with Fraunhofer USA. The settlement validated IBIO’s intellectual property pertaining to the company’s plant-based biopharma-production system. Not only did IBIO receive compensation for its legal expenses, but it will be paid for licensing its technology to Fraunhofer. Its FastPharming technology rapidly derives proteins from plants for the purpose of vaccine and drug development.
Two days later, IBIO disclosed plans to develop its second COVID-19 vaccine candidate. The next-gen vaccine, dubbed IBIO-202, is intended to combat the emerging variants of the virus. Preclinical studies are underway and IBIO said it expects to have results early in Q1 of FY22.
Its initial coronavirus vaccine candidate, IBIO-201, was also reported to be progressing well after favorable toxicology studies were completed.
IBIO started the week at $1.37 and is trading around $1.62 after climbing as high as $1.95 in May 7th trading.
Earlier this year, Cantor Fitzgerald started covering IBIO. It gave it an ‘overweight’ rating and $3.00 target which represents a near-double from here.
IBIO certainly looks poised to return to at least the $3.00 level. Continued progress with its two COVID-19 platforms would certainly benefit the stock.
PENNY STOCKS TO WATCH #3 PIXY
PIXY has been a hot topic in social media circles after the staffing software company announced that it is sponsoring four SPAC offerings through a new wholly-owned subsidiary.
SPACs, or special purpose acquisition companies, have been in the news a lot since last year. The so-called “blank check companies” can be thought of as a placeholder for a company that wants to go public at a future date. A SPAC, which is listed on a national stock exchange, acquires a private company allowing it to avoid the extensive and costly IPO process that companies traditional go through to become public.
PIXY was listed as the sponsor for four different SPACs in a series of Form S-1’s filed with the SEC:
- Industrial Human Capital, Inc. which is seeking to acquire one or more light industrial staffing companies
- Vital Human Capital, Inc. which is seeking to acquire one or more health and nursing staffing companies
- TechStackery, Inc. which is seeking to acquire one or more technology staffing companies, and
- Insurity Capital, Inc. which is seeking to acquire one or more commercial insurance company “shells”.
In total the PIXY-backed SPACs are hoping to raise more than $1 billion through the public listings.
All four offerings are expected to start within the next 45 to 60 days following a series of “roadshows” involving two underwriters. During this process, private and institutional investors have a chance to learn more about these four companies before they go public via PIXY.
Putting the alphabet soup aside, this news means that PIXY is about to become a much larger company. The simultaneous acquisition of four complementary business will expand its product portfolio and lead to potential cross-selling opportunities.
PIXY is setting out to disrupt the human capital management industry through its mobile engagement technology. It is targeting the restaurant space as well as the “Gig Economy”, a topic of much debate during the pandemic.
SPAC-related news seems to get investors easily excited these days and the PIXY story is no exception. Nearly 69 million shares of the stock exchanged hands on April 29th and trading activity has since remain elevated.
We should know more about the outcome of the SPAC offerings in the next few months. In the meantime, PIXY may continue to ride the SPAC news wave higher.
PENNY STOCKS TO WATCH #4 VXIT
VXIT closed the week on a two-day winning streak that saw the stock surge more than 50%. The tiny company appears to be getting a second wind after slipping from its dramatic early 2021 climb.
Formerly known as Poverty Dignified, Inc., VXIT recently became VerExit Technologies. It specializes in advancing innovative, safe, and effective products in the antiviral space.
The chatter on VXIT is relatively light but that doesn’t mean something positive isn’t brewing. With this said, a stronger online presence and investor relations support would help VXIT get the word out to prospective customers and investors.
VXIT has, however, made progress in the PR department in recent weeks.
Last month it announced a partnership with The Medical Wellness Association (MWA), an organization that promotes medical wellness programs, products, and services. MWA will review and endorse products that will appear on VXIT’s soon-to-be-launched Safer Place Marketplace featuring safety and hygiene products for businesses and consumers. VXIT noted that an MWA Certificate of Review is considered the equivalent to the “Good Housekeeping Seal of Approval” in the medical, wellness, and safety communities.
One product that is expected to be on Safer Place Marketplace site is miniTREAD. Is it a seated treadmill developed by Onthemuv that represents a unique way for people to exercise at home or the office. VXIT announced a partnership with Onthemuv a week after the MWA news.
Then on April 27th, VXIT announced that it received an order for personal protection masks from Gymboree Play & Music, a Washington D.C.-based learning center. Although VXIT didn’t disclose the size of the order, this helped generate some talk around its growth prospects.
A few years ago VXIT was a $5.00 stock. The road to return to that level is long, but given the recent momentum this OTC penny stock is headed in the right direction.
Recent news feeds seem to have finally put VXIT on the investor map. With the shareholder meeting coming up at the end of this move, we see VXIT at new highs sooner rather than later.
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.