Warren Buffett has expressed multiple times that investing in small-cap stocks, or penny stocks, and holding them for years directly leads has been one of the keys to his success.
These companies can typically deliver massive percentage returns — if you know how to pick them. Small caps have the potential to outperform the rest of the market during a bullish business cycle, portrayed by the changing monetary policy set by the Fed.
Today, the Fed is pointing to potential interest rate cuts for this year. This event that could push the narrative for many investors to look for outsized opportunities in penny stocks. Here are the three best candidates for you to look over.
Air China (AIRYY)
Chinese stocks have scared many investors in recent years. Meanwhile, others have started trickling into the nation’s stock markets. Michael Burry, for example, has made Alibaba Group (NYSE:BABA) his most prominent portfolio position today at $5.8 million. However, at $70-$80 a share, looking for cheaper growth opportunities may be more sensible.
Air China (OTCMKTS:AIRYY) is currently trading at $11.24 a share and promises tons of tailwinds and growth. More investors are betting on the inevitable comeback of the Chinese economy to its former glory, and more economic activity tends to translate to more business or consumer flights.
This idea is live at play through analyst projections for 32.63% earnings per share growth this year, which is higher than the average airline industry’s expected growth. Since earnings typically drive stock prices, it should be no surprise to learn that there is a CNY 5.6 price target on the stock, which is 27.8% higher than its CNY 4.4 price today. Of course, these percentage changes will translate to the ADRs.
Nio (NIO)
Are you that shocked to see two China plays on this list of penny stocks? After all, the country is on the verge of a massive breakout and bull cycle in its stock market. Wave after wave of stimulus coming from the government act to make a basement level of support in the different indices; all it needs is a little push to start coming back to new highs.
At a consensus EPS projected growth of 60.2% over the next twelve months, Nio (NYSE:NIO) is another consumer-based ‘penny stock’ to consider in the newest round of tailwinds coming to the Chinese stock market. Trading at only $5.42 a share, this stock quickly becomes another affordable option for outsized returns.
Price targets set by these same analysts lie at $12.7 a share, implying a more than bullish view from Wall Street analysts. From today’s prices, these targets imply a rally of over 110% to meet these valuations. There is the main differential advantage that comes with investing in smaller companies.
Keep in mind that this stock trades at only 37% of its 52-week high prices, which makes for a ridiculous discount considering where the consensus is today for a higher ceiling to be had in this company.
Paladin Energy (PALAF)
Acting as a bit of a long-term play, Paladin Energy (OTCMKTS:PALAF) brings you a way to expose your wealth to the megatrend happening in the world of energy. Plenty of experts are now suggesting that the world’s leading economies will need to transition to both renewable and efficient sources.
As technology keeps making breakthroughs, nuclear energy quickly becomes the best option based on these criteria. Being a uranium miner in Australia, Canada and Africa, Paladin stock is well positioned to provide the needed commodity to expand nuclear energy adoption.
Trading below $1.00 a share makes this stock the best option for you if your portfolio is under a tight budget, and with a 150% projected EPS jump for this year, you cannot hope for anything better in this space.
Considering the stock trades at 79% of its 52-week high, there is at least 21% upside potential to reach its previous high cycle.
As of this writing, Gabriel Osorio-Mazzilli did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines (no position)