Stocks that trade under $5 per share are often referred to as penny stocks. Many penny stocks trade for literal pennies (or less) on the OTC market, but there are plenty of penny stocks that trade on major exchanges as well.
The Nasdaq and NYSE require all stocks listed on their exchanges to maintain a minimum share price of $1 or risk being delisted. Most companies do not want their shares trading under $5, so there’s a good chance the large majority of penny stocks have been through some tough times. But that doesn’t mean there are no penny stock buying opportunities as well.
Here are eight penny stocks to buy, hold and sell, according to Bank of America.
Lloyds Banking Group PLC (NYSE: LYG) - Sell
Lloyds Banking Group has a market cap of more than $100 billion and is one of the largest banks in the UK, but you wouldn’t know it by its $1.50 stock price. Lloyds shares are down another 53% in the past year as the bank struggles to deal with historically low interest rates.
Analyst Rohith Chandra-Rajan recently said Lloyds’ first quarter numbers were bad across the board, but given income and credit quality pressures, things could get even worse in the second quarter. For now, Lloyds has adequate capital, but the company’s revenue outlook will have to significantly improve before the stock is investable, Chandra-Rajan said.
Bank of America has an Underperform rating and $1.28 price target for LYG stock.
Nokia Oyj (NYSE: NOK) - Buy
Nokia is a telecom network infrastructure equipment supplier. The stock is down 29.3% in the past year, but analyst Tal Liani recently said the company’s first-quarter numbers were solid.
Looking ahead, Liani said 5G demand should ramp up in the second half of the year, and Nokia has significant opportunities to improve its margins and turn around its slumping business. In the first quarter, Networks gross margins were up 3.5% from a year ago to above 30%. Liani said Nokia is far from a growth story given sales will likely be down 3.4% in 2020, but the stock has self-help upside potential.
Bank of America has a Buy rating and $4.80 price target for NOK stock.
Ford Motor Company (NYSE: F) - Buy
Ford shares have spent most of the last six weeks trading right around $5. The global auto industry has been decimated by the coronavirus outbreak.
Ford reported a $2 billion first-quarter loss and guided for another $5 billion loss in the second quarter. However, analyst John Murphy said Ford has done a good job in shoring up its balance sheet by drawing $15.4 billion on its revolving credit facility and raising $8 billion via an unsecured senior notes offering. Murphy said Ford will likely emerge from the economic downturn a stronger company, and the economic pressures have likely hastened Ford’s restructuring and cost-cutting efforts.
Bank of America has a Buy rating and $7 price target for F stock.
Nio Inc - ADR (NYSE: NIO) - Buy
After a brutal 2019, shares of Chinese electric vehicle maker Nio have gained 81.6% so far in 2020 but remain priced under $4. Analyst Ming Hsun Lee recently upgraded Nio.
In the midst of a brutal global auto market, Nio reported 3,155 deliveries in April, up 181% from a year ago and 106% from March. Lee said Nios recent fundraising has reduced cash burn fears and sales growth should help boost margins over time. Lee also said the recently announced EV purchase subsidy scheme demonstrates that the Chinese government intends to help support the company.
Bank of America has a Buy rating and $5 price target for Nio stock.
Southwestern Energy Company (NYSE: SWN) - Sell
Southwestern Energy is one of the largest natural gas producers in the U.S. The oil market has been devastated by the economic shutdown, but natural gas prices have actually been relatively stable year-to-date. Still, analyst Doug Leggate recently said core Marcellus inventory depth is a concern for the company.
Southwestern could also be at risk of exceeding its net leverage requirements under its 2018 debt covenants. Shares are up 80% in the past three months on the expectation that less U.S. oil production will limit associated gas supply, but Leggate said the impact may be smaller than investors realize.
Bank of America has an Underperform rating and $1.85 price target for SWN stock.
Transocean LTD (NYSE: RIG) - Sell
Transocean is one of the world’s largest offshore oil drilling contractors. Transocean has been one of the worst investments in the market over the past decade, and shares are down 98% overall during that period. Unfortunately, analyst Mike Sabella recently said there seems to be no end in sight for Transocean’s troubles.
Sabella said there is essentially no demand for offshore drilling, and a severe lack of capital will likely force cold stacking and scrapping of existing rigs. Leverage and free cash flow problems will likely continue to plague the company for years to come.
Bank of America has an Underperform rating and $1 price target for RIG stock.
J C Penney Company Inc (NYSE: JCP) - Sell
Twenty years ago, it would have seemed inconceivable that JC Penney shares would be trading at 18 cents. Yet here we are. Less than two years after Sears was delisted, JC Penney is a true penney stock and appears to be headed down the same path.
Even prior to the coronavirus outbreak, same-store sales dropped 7% in the fourth quarter and the company guided for up to a 4.5% drop in 2020. Analyst Lorraine Hutchinson recently said JC Penney simply can’t seem to stop the bleeding, and the stock is untouchable unless the company somehow finds a way for its business to make a 180-degree turn fast.
Bank of America has an Underperform rating and 20-cent price target for JCP stock.
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