Penny stocks can be intriguing due to their low share price and potential for high returns. These stocks trade for less than $5 per share, and have small market capitalizations. These companies often operate in emerging industries with high growth potential.
However, penny stocks carry significant risks, as not all businesses will be successful. Here are two penny stocks that are rated “strong buys” in the analyst community, and could be appropriate for investors with a diversified portfolio and a high-risk tolerance.
Penny Stock No. 1: Archer Aviation
Flying taxis are no longer just science fiction. Archer Aviation (ACHR) is a small company with a market cap of only $1.03 billion, but it is striving to prove itself in the burgeoning electric vertical take-off and landing (eVTOL) market.
Founded in 2018, the company has yet to establish itself as a major player in the industry. Archer is still in its early stages of development, and profitability could take years. However, investors can benefit from the company's long-term position to capitalize on the growing air mobility market as demand for eco-friendly transportation options rises.
Archer's partnership with Stellantis (STLA), a global automotive manufacturer, provides access to manufacturing expertise and resources. In addition to previous investments, Stellantis has contributed an additional $400 million to increase Midnight's manufacturing capacity to 650 aircraft annually.
In the second quarter, the company delivered its Midnight aircraft to the U.S. Air Force as part of the AFWERX Agility Prime contract, which is valued at around $142 million. ACHR also intends to launch its Los Angeles air taxi network by 2026.
Furthermore, Archer announced in the second quarter that Future Flight Global intends to buy up to 116 Midnight aircraft worth up to $580 million. In total, Archer now has nearly $6 billion in indicative orders, including all associated predelivery payments. The company ended the quarter with $360.4 million in cash and cash equivalents.
Adam Goldstein, Archer’s CEO, stated, “With the additional funding and planned LA network we announced today, Archer is well positioned to meet our goal of commercialization as early as next year.”
The eVTOL industry is still in its early stages, and companies like Archer will have to overcome challenges such as regulatory barriers, safety concerns, and the development of infrastructure to support eVTOL aircraft. As a penny stock and a growing company, Archer Aviation stock offers a high-risk, high-reward opportunity for investors who believe in the future of urban air mobility.
Archer’s stock is down 50.5% year-to-date, compared to the S&P 500 Index's ($SPX) gain of 19.6%. Nonetheless, Wall Street believes the stock could rally around 205% over the next 12 months, based on its average target price of $9.25. Plus, its high price estimate of $12.50 suggests a gain of 312.5% over current levels. However, I believe investors in ACHR stock should be prepared for long-term growth rather than immediate returns.
Overall, Wall Street rates the stock a “strong buy.” Of the eight analysts who cover ACHR stock, six rate it a “strong buy,” one recommends a “moderate buy,” and one suggests a “hold.”
Penny Stock No. 2: Nuvation Bio
Sitting at a market cap of $546.2 million, Nuvation Bio (NUVB) is a clinical-stage biopharmaceutical company. This stock has piqued analysts' interest due to its emphasis on oncology and difficult-to-treat cancers that conventional therapies have failed to address.
Nuvation stock has gained 53.6% YTD, outperforming compared to the broader market.
Nuvation Bio's portfolio includes several programs that target various types of cancer, including breast, prostate, lung, and ovarian cancer. Taletrectinib, the company's lead candidate for the treatment of advanced non-small cell lung cancer (NSCLC), is currently in late-stage clinical trials. The U.S. Food and Drug Administration (FDA) has granted orphan drug designation to Taletrectinib for the treatment of patients with ROS1-positive NSCLC.
Because of the positive results from the phase 2 trials, the company plans to commercialize the drug in 2025, pending regulatory approval. Nuvation also has a few other candidates in Phase 1 and Phase 2 clinical trials for the treatment of advanced solid tumors, which have shown promise in early studies to inhibit cancer cell growth.
Nuvation ended the second quarter with $577.2 million in cash, cash equivalents, and marketable securities.
However, until the company commercializes its drugs, it will remain unprofitable. Any setbacks in clinical trials, such as safety concerns or a lack of efficacy, may hurt the stock.
Turning its bottom line green may take several years due to the unpredictable and time-consuming regulatory approval process. Furthermore, it may take some time for a drug to generate profits successfully.
In the meantime, Nuvation Bio stock may provide an opportunity for investors with a high risk tolerance and a long-term perspective to participate in the next generation of cancer treatments while earning significant returns.
Overall, Wall Street rates NUVB a “strong buy.” Of the five analysts who cover the stock, four rate it a “strong buy,” and one recommends a “moderate buy.”
Its average target price of $6.75 suggests that NUVB stock could rally around 192.2% over the next 12 months. Plus, its high price estimate of $10 suggests a gain of 332.9% over current levels.
