Best Small-Cap Tech Stocks for 2020
Technology stocks have often been the best place for investors to park their money. And not just in 2019. The entire 2010s were a spectacular decade for tech stocks, including tech penny stocks.
It doesn’t hurt that the 2010s were the first full decade in history in which the U.S. didn’t experience a recession.
The tech-heavy Nasdaq, which tracks approximately 3,300 stocks, advanced roughly 35% in 2019 and more than doubled since the start of the decade.
The Technology Select Sector SPDR Fund (NYSE:XLK), which is also at record levels, increased more than 50% in 2019 and soared approximately 360% during the 2010s.
Chart courtesy of StockCharts.com
It’s The Economy, Stupid
The perma-bears may be calling for an end to the good times in 2020, but by all appearances, tech stocks should continue their bullish ways into the next decade.
For starters, the trade war (and the much-feared tech cold war) between the U.S. and China has been thawing.
And with the U.S. presidential election taking place in November, chances are excellent that President Donald Trump will want the U.S. economy to be running at full steam. The U.S. economy is already strong: jobs are being created, unemployment is down, and wages have been rising.
This bodes well for any president heading into an election.
But with Trump being impeached, he’s going to want to do everything possible to win a second term. A strong economy would be the best way for Trump to get re-elected. And putting an end to the trade war is one of the best ways to get there.
Stocks Remain at Record-High Levels
For Trump, the stock market is a barometer on the health of the U.S. economy. And he has been doing everything he can to keep the upward trajectory alive, with cuts to corporate taxes and to the Federal Reserve’s key lending rate.
Meanwhile, as the same old big tech stocks continue to hog the limelight, there are many lesser-known stocks that have even greater potential in 2020.
Some of the country’s biggest tech stocks are expected to advance by anywhere from 15% to 30% in 2020. But most tech stock investors, especially those not afraid of a little risk, are looking for gains in excess of 100%. The only place to find that kind of outsized gain is tech penny stocks.
Note that, thanks to inflation, the term “penny stock” now usually refers to any stock trading for less than $10.00.
Best Tech Penny Stocks for 2020
There are a lot of excellent penny stocks with strong fundamentals, revenue growth, and outlooks.
Here are three tech penny stocks that could seriously outpace the broader stock market in 2020.
|Digital Turbine Inc||NASDAQ:APPS|
Digital Turbine Inc
Digital Turbine Inc (NASDAQ:APPS) had a great 2019. APPS stock advanced about 290% in the year. And that’s after a little profit-taking.
The company’s share price hit a new 52-week high of $9.13 on November 29, for a year-to-date gain of about 385% at the time.
Chart courtesy of StockCharts.com
Thanks to a string of strong financial results, Digital Turbine’s outlook remains bullish. The company has reported strong revenue growth and it has an enviable balance sheet.
This might explain why Digital Turbine stock was up so much in 2019.
About Digital Turbine Inc
Digital Turbine helps mobile apps get discovered. If you have a mobile phone, there’s a good chance you’ve noticed an app that you didn’t download (and an app you’re pretty sure wasn’t there yesterday).
As a consumer, you may not love the idea of apps being automatically downloaded to your device, but as an investor, that’s another story.
Through Digital Turbine’s digital software “Ignite,” apps are automatically delivered to mobile devices, which helps companies widen their market reach and generate new revenue streams. (Source: “Canaccord Genuity 39th Annual Growth Conference August 2019,” Digital Turbine Inc, last accessed January 3, 2020.)
Digital Turbine’s wildly popular mobile advertising platform has been used by more than 40 mobile operators and original equipment manufacturers (OEMs), delivering more than 2.3 billion app preloads to more than 300 million devices.
Q2 Revenue Advances 37%, Adjusted EBITDA Up 181%
In November, Digital Turbine announced the financial results for its second quarter of fiscal 2020 (ended September 30, 2019). Revenue in the quarter was up 37% year-over-year, at $32.8 million. (Source: “Digital Turbine Reports Fiscal 2020 Second Quarter Results,” Digital Turbine Inc, November 4, 2019.)
The company reported a second-quarter generally accepted accounting principles (GAAP) net loss of $1.3 million ($0.02 per share), versus net income of $2.1 million ($0.03 per share) in the same prior-year period.
Non-GAAP adjusted net income for the second quarter of 2020 was $4.1 million ($0.05 per share), up from $1.1 million ($0.01 per share) in the second quarter of fiscal 2019.
Non-GAAP adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) was $4.5 million, up from $1.6 million in the same period in the previous year.
As of September 30, 2019, Digital Turbine Inc had a cash balance of $25.2 million, up from $16.2 million on June 30, 2019. Furthermore, the company has zero debt.
CEO Bill Stone commented, “In addition to delivering strong operating results, we are also continuing to make meaningful progress in terms of our product development and business development efforts that will prove integral to the company’s sustained growth in the future.”
NeoPhotonics Corp (NYSE:NPTN) stock has been on a tear since June 2019. During the last seven months of 2019, NeoPhotonics stock soared by approximately 130%.
Most of those gains came after the company reported strong second- and third-quarter financial results.
Chart courtesy of StockCharts.com
About NeoPhotonics Corp
The San Jose, California-based NeoPhotonics is a leading designer and manufacturer of high-tech products for high-speed, bandwidth-intensive communications networks. (Source: “Company,” NeoPhotonics Corp, last accessed January 3, 2020.)
Q3 Revenue Increases 13%, Swings to Net Income of $2.2 Million
In October, NeoPhotonics announced that revenue for its third quarter ended September 30, 2019 increased 13% year-over-year (and quarter-over-quarter) to $92.4 million. (Source: “NeoPhotonics Reports Third Quarter 2019 Financial Results,” NeoPhotonics Corp, October 31, 2019.)
The company reported net income in the third quarter of 2019 of $2.2 million ($0.05 per share), compared to a net loss of $8.1 million (loss of $0.18 per share) in the same prior-year period.
Non-GAAP diluted earnings per share (EPS) in the third quarter of 2019 were $0.11, a significant improvement from the loss of $0.05 per share in the third quarter of 2018.
The company ended the third quarter with cash and cash equivalents, short-term investments, and restricted cash of $80.0 million, up $6.0 million from the previous quarter.
“Solid execution, strong customer demand, and cost reduction combined for a profitable quarter for NeoPhotonics,” said Tim Jenks, Chairman and CEO.
“Despite the trade tensions, we believe the macro trends of the industry favor our core capabilities of delivering the highest performance products for the most demanding applications.”
GOGO Inc (NASDAQ:GOGO) stock was on a bit of a roller coaster ride in 2019.
GOGO stock enjoyed the “January Effect on steroids” in 2019, and by May 15, it had advanced about 100%.
Then, after trading in a narrow range from June to August, the stock soared after the company announced closing on a $30.0-million credit facility to strengthen its balance sheet and liquidity. (Source: “Gogo Closes $30 Million Revolving Credit Facility to Strengthen its Balance Sheet and Liquidity Position,” Gogo Inc, August 27, 2019.)
GOGO stock has pulled back slightly from those lofty levels, but it rose about 114% in 2019.
Chart courtesy of StockCharts.com
About GOGO Inc
GOGO is the leading provider of in-flight broadband connectivity products and services for the business and commercial aviation industry. (Source: “Company Profile,” GOGO Inc, last accessed January 3, 2020.)
The Chicago, Illinois-based company designs and develops software that allows aircraft operators to provide their passengers with Internet and entertainment services. GOGO also provides software that connects aircraft with their crew.
The company currently provides broadband connectivity services to about 3,000 commercial aircraft and approximately 4,200 business aircraft. It also has contracts to install its latest high-speed global satellite solution, “2Ku,” on about 1,500 commercial aircraft.
Solid Third-Quarter Results
On November 7, GOGO announced that revenue for its third quarter ended September 30, slipped 7.4% year-over-year to $201.3 million, from $217.2 million in the same prior-year period. (Source: “Gogo Announces Third Quarter 2019 Financial Results,” GOGO Inc, November 7, 2019; “Gogo Announces Third Quarter 2018 Financial Results,” GOGO Inc, November 6, 2018.)
GOGO’s service revenue from the North American commercial aircraft segment decreased year-over-year 14% to $80.5 million.
Service revenue from commercial aviation covering the rest of the world, however, increased 28% to $22.6 million. Service revenue from the company’s business aviation segment increased 12% to $55.3 million.
GOGO reported a net loss of $22.9 million ($0.28 per share), a big improvement from the net loss of $37.7 million (loss of $0.47 per share) in the same period in 2018.
The company reported third-quarter adjusted EBITDA of $35.4 million, up from $21.1 million in the third quarter of 2018.
Free cash flow came in at $33.8 million. In the third quarter of 2018, GOGO Inc reported negative free cash flow of $72.1 million.
During the third quarter of 2019, GOGO had installed 2Ku on 1,289 aircraft, a sequential increase of 73 aircraft. At the end of the third quarter, GOGO had a 2Ku order backlog of 845 aircraft.
“Gogo delivered a solid third quarter, highlighted by continued strong operational execution and successful implementation of cost controls,” said Oakleigh Thorne, President and CEO.
In 2018, some on Wall Street were predicting only modest gains for stocks in 2019. That outcome fortunately failed to materialize. 2019 was a great year for tech stocks (and stocks in general).
Once again, Wall Street is predicting small gains for stocks in 2020, and once again, it doesn’t really matter what Wall Street thinks. Mainstream analysts have never been very good at gauging investor sentiment or psychology.
Moreover, when it comes to technology penny stocks, there are always going to be some stocks trouncing the rest of the stock market. With that in mind, Digital Turbine Inc, NeoPhotonics Corp, and GOGO Inc all have strong operations, fundamentals, and outlooks for 2020.