Energy Penny Stocks Surge In March
When you think about penny stocks, what comes to mind? Is it shady companies with questionable operations? It might be something more akin to a Silicon Valley start-up or a fledgling biotech company. According to the definition of penny stocks, it isn’t any of these at all. In fact, it’s straightforward. The term “penny stock” is only defined by its price, less than $5 per share.
Now, what comes along with these low-priced names is where the story begins. A long history of huge successes and epic failures can be associated with many companies in the stock market today. But no asset class overly emphasizes this like these types of stocks do. The moves in the market are so much more enhanced. Where a stock like Apple might move 5% on “huge news,” a similar tech penny stock might jump over 100%.
But herein lies another facet of the world of penny stocks: the ones that jump thousands of percentage points. These are few and far between. However, when they happen, the small-cap space takes immediate notice.
This week the market’s focus has been on reopening stocks. These include everything from retail stocks and tech to names in energy. It’s the latter that has gotten a much bright spotlight shined on it over recent weeks. Now, I’m not talking about renewable energy or clean energy penny stocks. In this case, oil and gas have taken the bulk of the interest.
Oil Prices Push Stocks
This week the Biden administration said that it will deliver an interim report on its suspension of oil and gas sales for federal lands and waters by the summer. This is part of the administration’s initiative to fulfill on a campaign pledge made during Biden’s campaign.
“The federal oil and gas program is not serving the American public well,” Interior Department Principal Deputy Assistant Secretary Laura Daniel-Davis said in a statement. “It’s time to take a close look at how to best manage our nation’s natural resources with current and future generations in mind.”
Furthermore, OPEC+ agreed last week to maintain production cuts in April. We’ve got to also keep in mind that the “reopening trade” has centered around commerce and the economy. As countries begin opening their doors once again, the need for fuel has become evident. Pent-up demand for travel and manufacturing could be underpinnings for a unique scenario of high supply and even higher oil demand.
Sympathy Sentiment Fuels Penny Stocks
When it comes to penny stocks, in particular, sentiment plays a much larger role. Since most of these companies are smaller traders, they tend to weigh the future outlook more heavily than the current shortcomings. A biotech company going into Phase 1 trials that report a slight achievement in efficacy may see its stock jump more than a company like Gilead reporting a new sales agreement for a drug that’s already been approved.
In light of the reopening trade, the same has held for energy stocks. When it comes to the cheaper names, most have moved thanks to sympathy sentiment from the market, in general. I know for those who’ve read our articles on oil and gas penny stocks over the months, we’ve found that fewer have had actual company-specific or fundamental catalysts driving their market price in comparison to the overwhelmingly bullish sentiment on the sector itself.
So why mention this? Well, the fact that so many of these, now former penny stocks, have rallied well-beyond the $5 threshold has traders looking for cheaper names. Just because this is the case, that doesn’t mean there aren’t any more penny stocks to buy. Let’s take a look at some of the more active stocks to watch in the energy sector today.
Energy Penny Stocks To Buy [or Avoid]
Whether you’re looking for penny stocks to buy, watch, or names to avoid, these 4 names have popped up on scanners this week.
Kosmos Energy Ltd.
Shares of Kosmos have steadily climbed for the better part of the last 4 months. In that time, KOS stock climbed from around $1 to highs this month of $3.69 all the while, riding its 50-day moving average as a level of support. This week, shares of the oil and gas penny stock bounced off of this technical level again and have now broken back above the $3 mark.
This move also came on the heels of bullish analyst actions. Johnson Rice upgraded Kosmos from Hold to Accumulate. The firm also bumped its price target up to $4.50 from $4. Golman Sachs also adjusted its price target on KOS stock. Originally it was $4.50 and this week it got moved up to $5. Currently the bank has a Buy on Kosmos.
In its Q4 and full-year 2020 earnings, the company reiterated its focus on building upon its operational momentum in 2021. This included a ramp up in its Phase 1 activity for its Tortue project to reach 80% completion by year-end. The company also said it will emphasize a commitment to sustainability during the year by publishing its first Climate Risk & Resilience Report.
The ultimate goal is to become carbon neutral for Scope 1 and Scope 2 emissions by 2030. With a clear focus on clean energy and carbon neutrality by the Biden administration, companies like Kosmos are working diligently to get ahead of this dynamic shift within the energy industry.
ENG stock also continued its rally on Thursday. This move comes as a warm welcome from traders who’ve seen ENG slide over the last month. On February 10th, the energy penny stock traded at nearly $9 per share. With the market meltdown over the last few weeks, shares slid as low as $3.61. Since then, however, ENG stock has steadily climbed back.
This week ENGlobal reported its fiscal 2020 performance results. The company posted a net loss of $625,000, equating to a loos of 2 cents per share. This was on revenue of $64,449,000. The year prior, ENGlobal reported a net loss of $1,466,000 equating to a 5-cent loss per share, on revenue of $56,446,000. These results demonstrated a strong improvement, year-over-year even in light of the 2020 pandemic.
Newwly appointed CEO Mark Hess commented, “During the latter half of 2020, many businesses were shut down, airlines were not flying and demand for many of our clients’ products dwindled. Consequently, our business development efforts in many of our markets were severely hampered. Our backlog suffered as a result and we ended the year at about $24 million. Our focus the first part of this year is to rebuild our backlog as quickly as possible and we are investing heavily in our business development efforts to accomplish this goal.”
With this in mind and the tailwinds of bullish oil, ENG has benefited from the recent surge in oil & gas stocks.
Denison Mines Corp.
Shifting the focus to oil & gas alternatives, nuclear power has received its share of attention thanks to the Biden administration. His climate change budget involves spending on things like nuclear power and other carbon-free energy. Industry supporters also advocate for the importance of nuclear in the energy grid.
“Even with recent growth in wind and solar power, nuclear energy still provides more carbon-free electricity nationwide than all other sources combined,” according to the report authored by the Nuclear Innovation Alliance and the Partnership for Global Security.
Denison Mines fits into the arena as a uranium mining company. This month the company reported its 2020 results, highlighting a year of “significant project and company de-risking.”
The main point of focus has been on utilizing in-situ recovery methods to extract high-grade deposits more efficiently. This year, the company restarted the formal EA process for Wheler. This marked the completion of a temporary suspension announced last March. While there’s still a long road ahead, the progress made in 2020 could benefit Denison in 2021. David Cates, President, and CEO explained further that “Denison is uniquely positioned as a well-capitalized uranium developer, with multiple low-cost assets, at a time when the uranium market is showing signs of incremental improvement underpinned by growing calls for nuclear energy to re-emerge as a leading technology important to a sustainable global energy transition.”
With more focus on alternatives and low/no-carbon emission, nuclear power and the companies supplying raw materials could become a mainstay in the market discussion.
Torchlight Energy Resources
Another thing that oil and gas companies have done is either expand into green/alternative energy or aim for M&A activities altogether. To this end, Torchlight has taken up the latter in a multi-month merger process that could see it combining with Metamaterial Inc. Meta develop high-performance materials and nanocomposite products used in things like solar energy and auto applications.
Torchlight was a fully operational oil and gas company before this merger. The company focused on developing oil fields. Should this merger become effective, Meta will prevail as the operating company. Ever since the deal was made public, traders have speculated on its completion. Along the way, the company has shed assets, slashed its debt burden, and raised capital to contribute to Metamaterial loans.
Most recently, Torchlight loaned $10 million to META, evidenced by an unsecured convertible promissory note. If the arrangement agreement is terminated or expires without the completion of the arrangement, Torchlight will have the right to convert all or any portion of the principal amount and any accrued but unpaid interest into the common shares of META. However, as it stands right now, sentiment suggests that the market expects a firm closing to this transaction. At the end of the day, time will tell but until then, speculation has helped drive market momentum in the former oil and gas penny stock.