Best Penny Stocks to Watch in 2016

Best Penny Stocks to watchPenny Stocks Represent Best Opportunities in 2016

Overlooked, undervalued, fundamentally sound penny stocks will provide some of the best growth opportunities in the New Year. That’s why I’ve compiled this list of top penny stocks to watch in 2016.

While the broader markets continue to trade near record levels, investors have become justifiably worried about ongoing growth. As a result, it’s getting tougher and tougher for investors to find undervalued equities, especially when you consider the markets are seriously overvalued and the global economic outlook remains bleak. But for investors willing to shift through the market’s bargain bin, there’re still opportunities abound.

Penny stocks get a bad rap, mainly because of their price. Investors tend to look at a share and make an initial opinion based on the share price. If it’s in penny stock territory, investors tend to think you need to avoid it at any cost. If it’s trading above $10.00, then it certainly must be good enough for you to entertain.

Nothing could be further from the truth.

Admittedly, to those not familiar with penny stocks, it doesn’t look like it would take all that much for an equity trading for $0.20 to double to just $0.40. But it does! That means the company has to double in size; that’s not an easy thing to do.

At the same time, because of the price, there is an obvious appeal to penny stocks. With $2,000, you can take a solid position in a $0.25 stock. Think of the windfall! Unfortunately, the vast, vast majority of penny stocks are worthless and, despite the obvious sales pitches on their web sites, need to be avoided at all costs.

But it’s difficult to separate the wheat from the chaff. That’s because investors use the same logic to avoid penny stocks as they do to buy everything they hear about on TV. Investors follow a herd mentality. They avoid penny stocks because they’ve always been told to, regardless of the potential, and they buy whatever the ranting talking head tells them to on TV, regardless of the pitfalls.

For argument’s sake, and because of inflation, a penny stock is any equity trading under $10.00 per share. Because of that definition, a penny stock does not need to be a small company. There are a lot of well-known companies out there trading for under $10.00 per share, some of which, I’m sure, wouldn’t like to be referred to as a penny stock even though my definition says they are.

Penny Stocks Don’t Need to Be Risky

With penny stocks, there is a risk/reward trade-off. Just like with every stock, the riskier the stock, the greater the potential reward—or the riskier the stock, the greater the chance you could lose your whole investment.

But investing in penny stocks doesn’t have to be any riskier than investing in a blue-chip behemoth. Despite what the commission-conscious brokers will tell you, there is no safe haven when it comes to investing. You can have a terrible CEO making bad decisions running a penny stock company, but you can also have the same kind of person running a large-cap stock.

I can only imagine the thousands of investors who thought they were sleeping safely at night, thinking their well-earned money was safe in Nortel, Enron, or Lehman Brothers.

Regardless of whether it’s a big penny stock or a small penny stock, you need to consider the company’s technicals and fundamentals like its business model, products and services, cash position, and debt load. Ask yourself whether revenues are increasing regularly and if they’re profitable. Does the company provide a dividend? Finally, is it an undervalued penny stock with great potential or is it a penny stock that deserves to disappear?

Again, penny stocks are just like any other stock: it’s risky if you don’t do your due diligence.

The Best Penny Stocks Are Poised for Growth in 2016

The long-in-the-tooth bull-market is in need of a rest and it looks like it will get it in 2016. The U.S. economy may be picking up steam, but the global economy isn’t. The U.S. isn’t an economic island; in fact, stocks on the S&P 500 are more dependent on revenue from outside the U.S. than ever before.

Those economists who have chosen to willfully ignore the economic data coming out from every corner of the world will tell you the bull market could continue for another five to 10 years.

If you’re looking for stocks that provide growth, look for penny stocks with great potential that could go up in price regardless of what America’s favorite sugar mama, Federal Reserve Chair Janet Yellen, does with interest rates.

Look, there are a lot of well-known penny stocks out there trading for under $10.00 per share. But you don’t buy a big boring stock like The Wendy’s Company (NYSE:WEN) or a Fortune 200 company like The AES Corporation (NYSE:AES), because you’re looking for real penny stocks that have the potential of providing you with the kind of triple-digit gains under-the-radar penny stocks are known for.

You buy a stock like Wendy’s because it’s well known and you hope it outpaces inflation, giving you a better return than leaving your money in the bank.

Anyone can use a stock screener to find well-known companies trading for under $10.00, but if you’re reading about penny stocks, chances are really good you’re looking for out-of-the-way stocks that have the potential to give you the kind of massive returns bigger companies will never realize. That’s what you’ll find below.

5 Overlooked Penny Stocks to Watch in 2016

#1 Top Overlooked Penny Stock to Watch in 2016: DHX Media Ltd. (NASDAQ:DHXM)

DHX Media Ltd. (NASDAQ:DHXM) is a key player internationally in the creation of content for families and children. Its library of more than 11,000 half-hours of entertainment programming includes Yo Gabba Gabba!, Caillou, Teletubbies, In the Night Garden, Inspector Gadget, Johnny Test, Slugterra, and the Degrassi franchise. (Source: “About Us,” DHX Media Ltd. web site, last accessed October 13, 2015.)

DHX Media is the owner of Family Channel, the most-viewed children’s television channel in Canada, as well as Disney Junior (English and French) and Disney XD in Canada. DHX Media has offices in Toronto, Vancouver, Halifax, Los Angeles, London, Paris, Barcelona, Milan, Munich, and Amsterdam.

In late September, DHX Media announced record full-year results and increased its dividend. Full-year revenue was up 127% year-over-year at $264 million. Net income was up 150% to $19.5 million, or $0.16 per share. Fourth-quarter net income increased 139% to $71.2 million, while net income soared 255% to $3.7 million, or $0.03 per share. (Source: “DHX Media Reports Record Full-Year Results, Increases Dividend, and Announces Normal Course Issuer Bid,” DHX Media Ltd. web site, last accessed October 13, 2015.)

Dana Landry, CEO of DHX Media, commented, “This was a year of tremendous growth for DHX Media and we are extremely pleased to report increases across all key metrics. We are now realizing the rewards of the integrated platform we’ve been building over the past few years, as evidenced by our strong organic growth.”

On September 23, 2015, the company’s board of directors approved a dividend for the quarter of $0.015, an increase of 7.1%, on each common share.

Currently trading near $6.50, DHX Media’s share price is down roughly 20% since the beginning of January and 15% year-over-year.