Those of you that follow this post, will know that my view of Penny Stocks is not of a long-term buy and hold one. Instead, I believe that they definitely have a place in any well-balanced, diversified portfolio – but as long as you watch them carefully and exit them in accordance with a planned strategy.
Two names that I’ve been watching closely of late are Denbury Resources Inc. (DNR) and Arotech Corporation (ARTX), both of which play in different spaces altogether – so they make for great diversification. While DNR is a traditional Oil & Gas player, ARTX is in the exciting field of defence and aerospace.
By all measures, technical and fundamental, both names look ripe for the picking. As seen in the Price Movement chart above, while DNR is clearly showing some price momentum, ARTX recently (Sep 21) briefly traded above its 200-day moving average to $3.55. At the time of this writing, the shares are trading at $3.48 – slightly shy of its current 200-day EMA ($3.57).
There’s a lot of talk going around about trade wars and tariffs. The general feeling is that they are negative for most businesses. However, some participants in America’s the oil and gas industry could very well benefit from “protectionism”. Denbury Resources Inc. (DNR) is one such name.
Headquartered in Plano, Texas, DNR is an independent operator of a number of natural gas and oil facilities across the USA. They have a presence in some of America’s richest petroleum producing regions, including North Dakota, Montana and the Rocky Mountains area of Wyoming, and Texas, Mississippi, Louisiana and the Gulf Coast regions of Alabama.
Established in 1951, the company boasts of producing nearly 259.7 M BoE (Barrels of Oil Equivalent) of estimated proven gas and oil reserves.
On a fundamental basis, the stock trades at a Price/Book value (MRQ) of $3.03, which isn’t a hugely expensive multiple for a highly profitable business. Though it is operating in a rather difficult (and politically-charged) environment, it still managed to churn out top and bottom line growth, with Quarterly Revenue Growth (YoY) of 48.50%, and a Quarterly Earnings Growth (YoY) of 109.90%.
And speaking of profitability, the company’s metrics on that score are fairly impressive too, with 14.96% and 11.88% Profit and Operating (TTM) respectively, rewarding investors with a 28.17% Return on Equity.
On a technical basis, when analysed over a 1-year period, the share price seems to be signalling a Buy at these levels, with the Histogram turning positive, and the MACD line crossing over the Signal line.
We live in a world where, domestically, there’s growing concern for law and order and law enforcement. The threat of terrorist attacks is heightened, and the need for security has become paramount. That picture isn’t too different elsewhere, where countries around the world are craving for security solutions – and that’s what ARTX excels at!
This defence and security solutions provider has a range of products and services that are in great demand from law enforcement forces, security personnel, emergency service providers and military and para-military services around the world. From drones to training simulators, to highly-sensitive electronic design and engineering systems, the company’s services are in great demand.
It conducts business through a range of associated companies and subsidiaries, each specializing in a unique niche. One of its subsidiaries, FAAC Incorporated, recently won a massive contract worth $28.9M from the US Marine Corp. Through its Arotech Training and Simulation Division (ATSD), the company offers a range of simulation software used in combat aircraft, including the F-15s, F-16s, F-18s, F-22s, and F-35s. Other wings of the firm are actively delivering high-end solutions to modernize the US Navy’s Combat Convoy Simulators.
Fundamentally-speaking, the company is profitable – unlike many other penny stocks trading in the public market. With a Return on Assets (TTM) of 2.72%, and a Return on Equity (ROE) of 8.56%, the company has shown that it can reward its investors.
One key source of confidence, for Penny Stock investors sitting on the side-lines for this one, is the fact that insiders (14.54%) and institutions (27.76%) hold over 42% of the company’s shares. Additionally, prospective ARTX investors should also note that there has been a decline in short float, from 228.46K shares in July 2018, to 124.03K shares in Aug 2018. Might this indicate that the doom-sayers may be inclined to now view the stock as a buy?
On a technical basis, and viewed over a 1-year period, ARTX’s share price seems to be turning the corner, with the MACD line crossing the Signal line to the up-side, and the Histogram turning positive. This indicates a potential buying opportunity.
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Author does not have investment in stock discussed in this article.
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