There Are Precious Few Penny Stocks to Watch in 2017
Investors may find that the market is running short on cheap defense stocks in 2017. Why? Because the best defense penny stocks are already skyrocketing, due to political turmoil around the world, making their share prices unaffordable to the average investor. But don’t worry: we’ve compiled a brief list of penny stocks to watch in the coming months.
These stocks can offer triple-digit returns, particularly since President Donald Trump plans on increasing the defense budget. He plans on giving defense contractors an extra $54.0 billion next year.
If you have money in defense stocks, this should be music to your ears. Military spending grew at a slower rate under President Barack Obama, which is no surprise when you think about it. Obama cared more about diplomacy than “shows of strength.”
But Trump is the classic strongman. He wants to flex his muscles at America’s enemies, which is why he bombed Syria only three months into his presidency. It’s also why he dropped the biggest non-nuclear bomb in the history of the world on Afghanistan.
His primary goal is to project strength; that’s just who he is. Based on this knowledge of his personality, we can make an easy prediction: U.S. defense spending will continue to grow as long as Trump is president.
I don’t think anyone would argue with that fact, regardless of their politics.
America is knee-deep in the Middle East and there’s no definition of victory, which means there is no end in sight. U.S. forces will probably have some presence there for the next few decades.
But I’m not going to say much more about war.
Mark Twain once wrote, “War talk by men who have been in a war is always interesting; whereas moon talk by a poet who has not been on the moon is likely to be dull.” He meant that civilians like me shouldn’t pretend that we know what war is about.
He’s right. I don’t know what it feels like to be in the trenches. I’ve never been pinned down by enemy fire, seen a friend get shot, or shot someone myself.
But I do know investing. That’s my domain. So let’s just stick to that, and leave war to soldiers.
List of Defense Stocks That Investors Should Consider
You don’t want to blow half your portfolio buying three or four shares of one stock. I get it.
Not everyone has $100,000 to invest, let alone millions. That’s perfectly fine. Don’t let that feeling get you down, because it’s not real. Investing is for everyone.
Investing is not just for the rich.
In fact, investing is more important to people without a lot of money. It has the power to change lives. Anyone could become a millionaire, no matter who you are or where you come from. That’s what I love about capitalism.
But I’m getting away from the topic. Sorry.
It’s just so important to me that people realize what they can achieve through investing. But we’re supposed to be looking for cheap defense stocks in 2017, so here’s a list of defense stocks trading under $10.00 per share.
CHEAP DEFENSE STOCKS IN 2017
Acorn Energy Inc
Innovative Solutions & Support Inc
Air Industries Group Inc
CPI Aerostructures, Inc.
T.A.T. Technologies Ltd.
Although these stocks are trading cheap, not all of them are worth looking at. I’ve put together some quick packets of information on the best defense penny stocks on the list.
Take a look below.
1. T.A.T. Technologies Ltd.
T.A.T. Technologies Ltd. (NASDAQ:TATT) is listed on the Nasdaq Stock Exchange in the U.S., but it is an Israeli company. (Source: “Form 6-K Filing,” U.S. Securities & Exchange Commission, March 7, 2017.)
Over the last five years, this little stock has doubled its investors’ money, and it’s looking to accelerate those gains in 2017.
Revenues are stable and curving slightly upwards. Net profits took a big hit last year, but that looks like an outlier in the company’s performance. It was the product of tax maneuvering.
There is also some concern about TATT stock’s elevated price-to-earnings ratio, but once again, it mostly comes down to tax strategies. The market isn’t overly concerned with those numbers.
Here’s what you should be looking at:
- 15.2% revenue bump from Q4 2015 to Q4 2016
- Before taxes etc., TATT made $3.1 million in adjusted earnings
- $4.8 million in cash from operating activities, up 433% year-over-year
- TATT stock is trading above its 200-day moving average
- TATT stock is trading above its 50-day moving average
To be clear, the stock will likely encounter resistance at the $10.25 level, but it could soar once it breaks that threshold. At the moment, it’s just a waiting game.
2. CPI Aerostructures, Inc.
CPI Aerostructures, Inc. (NYSEMKT:CVU) is an aerospace contractor that’s been around for decades. This company has civilian and military contracts that keep it in the black. However, it’s not ironclad. The stock has been known to crumble under pressure.
That being said, there is tremendous upside in a company that makes successful products, but is unloved by the market. Why? Because investors are emotional.
Sorry, but it’s true. Investors get swept up in a narrative that has nothing to do with the company’s actual performance. Mainstream media outlets feed into their fears, their concerns, until investors lose sight of reality.
In the case of CVU stock, the fear was built around its annual performance. The numbers aren’t good. (Source: “CPI Aerostructures Announces Fourth Quarter and Full Year 2016 Financial Results,” CPI Aerostructures, Inc., March 7, 2017.)
- Revenue falls to $81.3 million from $100.2 million;
- Gross profit falls to $4.3 million from $16.6 million;
- Pre-tax income falls to $5.7 million loss from $8.0 million profit;
- Net income falls to $3.6 million loss from $5.0 million profit; and
- Earnings per diluted share falls to $0.42 loss from $0.58 profit.
At first glance, it’s easy to see why investors went running for the hills. The annual results tell a grim story about the company. But the quarterly results paint a rosier picture.
- Revenue drops to $24.3 million from $31.6 million;
- Gross profit increases;
- to $5.9 million from $3.6 million;
- Pre-tax income increases to $3.4 million from $1.6 million;
- Net income increases to $2.1 million from $0.7 million; and
- Earnings per diluted share increases to $0.24 from $0.08
In my experience, fourth-quarter results are more important than the whole-year results because they can show whether the business is picking up speed. Likewise, it can reveal if the stock is undervalued.
CVU stock certainly fits this model.
Part of the reason might be that the firm has $416.3 million worth of projects backlogged, which is seven percent higher than the same time last year. Investors may have convinced themselves that the year-long story was more important, but I always look to the most recent data.
3. Innovative Solutions & Support Inc
Innovative Solutions & Support Inc (NASDAQ:ISSC) is a publicly traded contractor in the aerospace industry. Naturally, there is some crossover in its client base and the firms working on national defense. Aerospace and defense companies share a lot of the same suppliers.
ISSC is one of them. It designs the kind of electronics that we never see, but are crucial to aircraft. For instance, it designs flight information computers, electronic displays, and the advanced monitoring systems that would measure airspeed, altitude, and fuel data.
No airplane is ever taking off without these systems in perfect working condition, so you can bet that ISSC’s business won’t vanish overnight.
The stock’s massive upside potential could be triggered by a military buildup. As geopolitics currently stand, the idea of a buildup is terrifyingly real. Tensions are flaring on the Korean peninsula and Donald Trump has an itchy trigger finger. War is not as distant as we thought.
That being said, even an expansion of military spending (like the one Trump has promised) could be a catalyst. I wouldn’t be surprised to see the stock move by double-digits in the next few weeks.
How Safe Are Defense Penny Stocks?
Before I give you a straight answer, let me tell you a quick story.
I went paragliding a few years ago, while travelling in Switzerland.
I’d never done anything like that before so, of course, it felt risky. In a way it was risky, because I’d never been skydiving before. There were so many things that could go wrong!
But the instructor who came with me had done this jump 100 times before. It was nothing to him.
In other words, safety is a relative thing.
He and I did not perceive risk in the same way, and it’s not just because he’d done it a hundred times. It’s because he’s the kind of person who wants to do it a hundred times!
Likewise, there are investors who can tolerate a bit more risk than others. They could most likely handle the pitfalls of any stock on the market, while others would feel queasy at a 2.3% drawdown. It’s a matter of character.
Nonetheless, the best defense penny stocks can see triple-digit gains this year. Those kinds of returns are hard to back away from, particularly if you’re looking for cheap defense stocks in 2017.
Remember: there are only a handful of penny stock to watch these days.