Penny Stocks are highly risky investments, although if picked correctly, they can also translate into very high returns. Most penny stocks trade over-the-counter and are quoted on separate boards, like the OTC Bulletin Board or OTC Link and have low trading volumes and may trade infrequently, which may create difficulties when selling the shares. However, there are also many penny stocks trading on major exchanges, such as the NYSE or NASDAQ, where they are more regulated and slightly less risky, since companies are required to disclose more information and are watched more closely by regulators.
Despite their speculative nature and other concerns, penny stocks should not be avoided altogether, since there are many companies whose stocks once traded under $5 per share, but eventually managed to make it big (here are some of the most successful penny stocks in history). If one decides to invest in penny stocks, or stocks that are priced under $5 per share, as defined by the Securities and Exchange Commission, the best way to start is to focus on stocks that are trading on major exchanges. Then it’s important to identify why the stock is trading below $5. In some cases, a stock can be cheap because the company is an emerging one and is just starting to operate, so we have to determine whether the company and its product has potential. In other cases, a stock might have tanked, so it’s important to assess the underlying causes of the decline, which can be either related to the company’s operations, or can be industry or sector-specific, which is why we have to assess if the company has a chance to turn around.
As a rule, smart money investors don’t bother with penny stocks, some are prohibited from doing so by regulations, others are just to large to get any substantial benefit that would justify the risk. Some hedge funds do invest in penny stocks on a regular basis, but the majority of them hold or invest in companies whose stock tanked from much higher levels and they are either sticking to their bullish thesis or are betting on the company returning to its former glory.
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Therefore, the hedge fund sentiment is a metric that should not be overlooked when it comes to picking penny stocks, even though they are much less popular than large companies, for obvious reasons. At Insider Monkey, we track the hedge fund sentiment towards thousands of stocks, as part of our small-cap strategy (read more details). In addition, we can identify the most popular penny stocks among hedge funds. For example, at the beginning of September, we covered 15 most popular penny stocks among hedge funds and six months later, we can see that most of those picks have generated positive returns.
In this article, we are going to focus on a particular group of hedge funds, those that are managed by billionaires. Among billionaire investors, there are a few that are long a handful of penny stocks, most of which are companies, whose stocks declined in the last couple of years. We have selected the most popular penny stocks among billionaire investors and on the next page we are going to take a closer look at these companies.
In Southwestern Energy Company (NYSE:SWN), the number of billionaires holding shares inched up by one to six during the fourth quarter of 2017. Subsequently, the total value of holdings of these investors went up by 25% to $352.25 million. The bulk of this value comes from a single stake, the one held by billionaire Cliff Asness’ AQR Capital Management. During the last three months of 2017, AQR boosted its stake in Southwestern Energy Company (NYSE:SWN) by 19.27 million shares to 20.27 million shares worth $113.11 million. In addition, billionaire Dan Loeb’s Third Point initiated a stake in the company and amassed 15 million shares worth $83.70 million at the end of the year.
Southwestern Energy Company (NYSE:SWN) stands to benefit from growth in oil prices that is expected this year, as OPEC intends to keep prices up, with Saudi Arabia also planning an IPO for Saudi Aramco (thus is motivated to keep prices up). US shale production appears to slow down and the demand for oil is expected to slowly grow. Southwestern Energy Company (NYSE:SWN) has just reported a solid fourth quarter, with both EPS of $0.12 and revenue of $809 million beating the consensus estimates by $0.03 and $4.08 million, respectively. In addition, the company’s revenue increased by 18.3% on the year, which is the fourth consecutive quarter of year-on-year revenue growth. In 2018, Southwestern Energy Company (NYSE:SWN) plans to focus on strategic alternatives for its Fayetteville shale assets and to accelerate development in Appalachia.
In Zynga Inc (NASDAQ:ZNGA), there were seven billionaires holding $283.14 million worth of stock at the end of 2017, unchanged over the quarter. Zynga Inc (NASDAQ:ZNGA)’s stock is up by 38% over the last 12 months, as the company maintained a double-digit revenue growth over the last several quarters. For the fourth quarter, Zynga Inc (NASDAQ:ZNGA) posted EPS of $0.01, lower than the expected $0.03, but its revenue advanced by 11.1% on the year to $223.78 million and was $10.60 million better than expected. Most analysts on the Street rate the stock of the social games developer as a ‘Buy’ (eight analysts). Since the beginning of the year, four analysts issued updates on the stock. Jefferies Group reiterated its ‘Buy’ rating and $5 price target, Credit Suisse increased the price target to $4 from $3.80 with an ‘Underperform’ rating, Wedbush set a price target of $6 with a ‘Buy’ rating and Consumer Edge initiated coverage on the stock with an ‘Overweight’ rating and $4.50 price target.
Kinross Gold Corporation (USA) (NYSE:KGC) saw five funds led by billionaires holding shares at the end of the last quarter, unchanged from the end of September. The stock of the gold mining company slid by 16% since the beginning of the year, amid a disappointing fourth quarter report, which included EPS of $0.01 and revenue of $810.30 million, which missed the consensus estimates by $0.02 and $60 million, respectively. Kinross Gold Corporation (USA) (NYSE:KGC) also saw a decline in production last quarter and expects lower production in 2018. However, Kinross Gold Corporation (USA) (NYSE:KGC) can also benefit from a potential bull run in gold prices. With international uncertainty surrounding Russia and North Korea and a weaker dollar due to a strong euro, gold prices should increase in 2018.
The number of billionaires from our database long Weatherford International Plc (NYSE:WFT) increased to five from four and the aggregate value of their holdings surged by nearly 50% to $237.03 million during the fourth quarter. Among the investors that boosted their stakes in the company is billionaire Israel Englander’s Millennium Management, which added 11.47 million shares to its stake, increasing it to 26.90 million shares worth $112.17 million at the end of December. Weatherford International Plc (NYSE:WFT)’s stock slid by more than 38% since the beginning of the year, on the back of a disappointing fourth-quarter report and the sale of the US hydraulic fracturing business to Schlumberger Limited. (NYSE:SLB). Previously, Weatherford International Plc (NYSE:WFT) had planned to place the business into a joint venture with Schlumberger Limited. (NYSE:SLB) in exchange for $535 million in cash and a 30% stake in the resulting company. The JV had been seen as a way for both companies to take on Halliburton Company (NYSE:HAL) and were also disappointed that Weatherford International Plc (NYSE:WFT) got just $430 million from the sale, which is lower that it would’ve obtained from the JV agreement.
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