There is no other way to say it: the U.S. stock market is overvalued. As an investor, you have to pick and choose, because a lot of the hot companies today may take a beating when a correction hits. Still, there are companies that have solid growth and seem to be a bargain at today’s prices. Here are the top three penny stocks to watch in August 2015:
Cincinnati Bell Inc. (NYSE/CBB)
Cincinnati Bell Inc. (NYSE/CBB) provides a variety of communication solutions to customers in greater Cincinnati. It offers high-speed internet, video, and voice services. Cincinnati Bell is the region’s dominant telephone company.
On May 7, 2015, the company announced its first-quarter financial results. Revenue increased four percent year-over-year to $293 million. Notably, revenue from strategic products surged 22% to $125 million. Net income for the quarter was $49.0 million, translating to earnings per share (EPS) of $0.22. (Source: Cincinnati Bell, last accessed July 14, 2015.)
One of the fastest-growing segments of Cincinnati Bell was Fioptics, which offered a suite of high-speed internet, digital telephone, and entertainment services. In the first quarter of 2015, Fioptics revenue grew an impressive 36% year-over-year to $42.0 million. On average, Fioptics subscribers increased by 28% compared to 2014.
For full-year 2015, the company expects revenue to come in at $1.1 billion, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $297 million.
Cincinnati Bell used to have a significant amount of investment in Cyrusone Inc. (NASDAQ/CONE), but reduced that this year. The company sold 14 million Cyrusone partnership units, receiving a total of $426 million in cash proceeds. The company still has 22% ownership of Cyrusone, worth approximately $450 million.
Cincinnati Bell’s shares currently trade at $3.80 apiece, giving a price-to-earnings (PE) ratio of 7.43. The company’s stock price has surged 17.3% since the beginning of this year.
Also Read: Top Penny Stocks to Watch in 2015
Nova Lifestyle, Inc. (NASDAQ/NVFY)
Nova Lifestyle, Inc. (NASDAQ/NVFY) is a modern lifestyle furniture company headquartered in California. The company’s products are made in the U.S. and Asia and sold to customers worldwide. Among Nova Lifestyle’s collection are brands such as Diamond Sofa, Colorful World, Giorgio Mobili, and Bright Swallow.
The company’s growth has been quite phenomenal recently. According to Nova’s earnings report for the first quarter of 2015, net sales came in at $22.0 million, a 23% increase year-over-year. Gross profit surged 25% to $4.1 million. (Source: Nova LifeStyle, last accessed July 14, 2015.)
The most impressive improvement was in net income. Last quarter, profits came in at $1.6 million, up from $0.3 million during the same period last year. That was a more than 433% increase year-over-year! This translated to EPS growth from two cents a share to eight cents a share.
Nova Lifestyle’s largest and fastest-growing market was North America. Sales in this market grew 34.6% in the first quarter of 2015. The company had secured repeat purchase orders from Nebraska Furniture Mart, which is owned by Warren Buffett’s Berkshire Hathaway Inc. (NYSE/BRK-A, BRK-B).
Sales in Asia also increased, with China being the fastest at 22.5%. The company did not perform well in Europe, with sales dropping 17.0%.
The company’s stock price has not reflected its rapid growth. Closing at $2.26 today, Nova Lifestyle’s share price declined more than 50% compared to a year ago. Right now, the company has a PE ratio of 4.76. With a valuation like that, this is one penny stock I’d be paying close attention to in 2015.
Atlantic Power Corporation (NYSE/AT)
Atlantic Power Corporation (NYSE/AT) is an electric utilities company that owns and operates a number of power generation assets in Canada and the U.S. Electricity generated from the company’s assets are sold to utilities and large commercial customers. Pricing is mostly based on long-term power purchase agreements to minimize exposure to risks in commodity prices.
Atlantic Power is currently in a transition phase, carrying out new strategies. The company plans to have significant reduction in costs, especially overhead costs. It is also in the process of optimizing its capital structure through deleveraging. This way, it could improve its cost of capital and reduce interest expense.
According to Atlantic Power’s earnings report for the first quarter of 2015, the company agreed to sell its wind portfolio for cash proceeds of approximately $350 million. The company planned to use the proceeds to redeem more than $310 million of its debt. (Source: Atlantic Power, last accessed July 14, 2015.)
Shares of Atlantic Power currently trade at $3.13. Since the beginning of this year, the company’s stock price has increased 13%. Atlantic Power is also a dividend-paying company, with a 3.17% dividend yield. It’s not often you find a top micro-cap stock like this with such a big distribution.