The Market Sell-Off Didn’t Touch These Penny Stocks
What happened in the stock market today? Why are people up in arms, and what should be done next? Market volatility came into play thanks to further concerns about rising interest rates. But for certain penny stocks, this fear wasn’t even a blip on the screen. In fact, there was so much overly bullish sentiment that they reached fresh 52-week highs. While we like to talk about major benchmark ETFs, including how the Russell Small Cap IWM outpaces broader markets, today was different.
By the closing bell, the S&P SPY, the Nasdaq QQQ, and, yes, the Russell IWM were all closing near or at their low of the day. One of the contributing factors was bond yields continuing to climb. The 10-year Treasury yield surged to 1.495%. This was a move reminiscent of last week’s shocking selloff in government debt. Also, Bloomberg cited that the market proxy for the anticipated annual inflation rate for the next half-decade “exceeded 2.5% for the first time since 2008.”
Beige Book results didn’t quell fears either. Almost in tandem with Wednesday’s afternoon sell-off, Beige Book results showed modest gains in the U.S. economy in February. However, despite upbeat sentiment, thanks to vaccine distribution, concerns persist.
“Labor demand varied considerably by industry and by skill level, and many contacts noted continued difficulties attracting and retaining qualified workers,” the Fed said.
The Beige Book also noted increasing costs in things like steel and lumber. However, this was likely attributed to disruptions in the supply chain in addition to pent-up demand. Furthering the inflationary fears, several reporting districts expect modest price increases over the next several months.
What Causes Inflation?
There are generally 2 drivers of inflation that boil down to the cost of goods and overall demand. The former is considered “cost-push” inflation, whereby the cost to produce goods increases. This can be in the form of higher wages, higher costs of raw materials, and the like. Demand or “demand-pull” inflation is where we see limited supply and increasing demand. This is where stronger economic conditions or an abundance of spendable cash can strain supply chains. This, in turn, can cause prices to increase due to the higher demand compared to the overall supply.
“The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s mandate for maximum employment and price stability. When households and businesses can reasonably expect inflation to remain low and stable, they are able to make sound decisions regarding saving, borrowing, and investment, which contributes to a well-functioning economy.”Board of Governors of the Federal Reserve System
Not All Penny Stocks Dropped; Some Hit Fresh 52-Week Highs
Even against a grim backdrop and continued sell-off into after-hours trading on Wednesday, it wasn’t so bleak for all penny stocks. In fact, several reached new milestone highs, 52-week highs to be exact. What will be interesting to see is if these penny stocks can sustain the uptrend even amid further selling pressure across most major markets.
- Lee Enterprises (NYSE: LEE)
- Castlight Health Inc. (NYSE: CSLT)
- Centennial Resource Development Inc. (NASDAQ: CDEV)
Penny Stocks To Watch #1: Lee Enterprises
I know we talk about identifying trends. But sometimes, in certain circumstances, it can come down to simply finding stocks that aren’t following the market. That’s a good thing considering Wednesday’s action. Lee Enterprises was one of the penny stocks to close green and also reached new 52-week levels. What’s more, overall, LEE stock has been on an absolute tear since the beginning of 2020’s 4th quarter. On October 1st, LEE stock opened for trading at $0.87 and this week hit a high of $2.94.
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Lee is hard to ignore when you think about it, especially during the pandemic when everyone’s home and while digital entertainment is the option of choice for most. Lee Enterprises provides local news and advertising to millions of consumers per month. Its services span across the United States, mostly in midsize markets.
The company released its first-quarter earnings last month, showing a significant rise, year-over-year in earnings per share ($0.28 vs. $0.09). Sales also came in stronger at $211.82 million compared to its previous year’s Q1 sales of $122.34 million. As the market sold off, LEE stock wast making new highs. Will that continue heading into the end of this quarter?
Penny Stocks To Watch #2: Castlight Health Inc.
On Wednesday, shares of Castlight Health surged. This move came just a few days after announcing a new COVID-19 vaccine navigation feature embedded into its Castlight app. This is supposed to allow employers an easy method for allowing their employees to navigate COVID-19 eligibility and availability, along with critical educational content to improve vaccine literacy.
Maeve O’Meara, chief executive officer of Castlight Health, “COVID-19 has made healthcare navigation even more critical, and our configurable, easy-to-use, yet comprehensive Vaccine Navigation solution will help guide employees and families to critical COVID vaccine information and resources.”
Castlight was also coming into the month after strong quarterly results. In its Q4 results, adjusted EPS came in much stronger than its previous year’s Q4. This latest quarter recorded an EPS of $0.02 compared to a loss per share of 5 cents the year prior. Sales also beat estimates coming in at $37.1 million compared to $33.06 million.
Penny Stocks To Watch #3: Centennial Resource Development Inc.
One of the strongest sectors in the stock market today was energy. In this case, the popular alternative energy stocks took a back seat to traditional oil and gas. Plans for big infrastructure spending and the potential for continued progress from reopening efforts have spurred significant momentum for energy stocks, in general.
Leading up to this month, momentum was already reeling as a result of the company’s earnings results at the end of February. While the company missed on EPS badly, it beat on sales estimates for the quarter.
Sean R. Smith, Chief Executive Officer explained that “Coupled with current strip pricing, our reduced cost structure, lower well costs, and shallower base decline rate set us up for free cash flow generation this year. We expect to organically de-lever the balance sheet and end the year in a stronger financial position.”
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With drilling coming back online for many oil companies, including Centennial, the reopening play could be something to factor in. Furthermore, with near-term spending on infrastructure, we likely see oil demand coincide with government & consumer spending.
Penny Stocks Discussed In This Article
(LEE Analyst Report)
|Castlight Health Inc.
(CSLT Analyst Report)
(CDEV Analyst Report)
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I am a seasoned financial analyst with a comprehensive understanding of the stock market, particularly in analyzing market trends, evaluating stock performances, and identifying investment opportunities. My expertise is grounded in years of hands-on experience in researching, trading, and advising clients on various aspects of financial markets.
Now, delving into the concepts mentioned in the provided article:
Market Volatility and Interest Rates: The article discusses how concerns over rising interest rates have led to market volatility. This connection between interest rates and stock market movements is fundamental in financial analysis. Rising interest rates can negatively impact stock prices as borrowing costs increase for companies, affecting their profitability and potentially dampening investor sentiment.
Benchmark ETFs and Index Performance: The article mentions benchmark ETFs like the S&P SPY, the Nasdaq QQQ, and the Russell IWM. Understanding benchmark indices and their performance is crucial for investors to gauge the overall health of the market and compare the performance of their investments against these benchmarks.
Bond Yields and Economic Indicators: The mention of the 10-year Treasury yield surging and its impact on market movements highlights the relationship between bond yields and investor sentiment. Bond yields are closely watched economic indicators, and their movements can signal investors' perceptions of future economic conditions, including inflation expectations.
Inflation and its Drivers: The article discusses inflationary concerns, citing factors such as rising costs of goods and increasing demand. Understanding inflation and its drivers, whether cost-push or demand-pull, is essential for investors to anticipate its impact on asset prices and make informed investment decisions.
Federal Reserve and Monetary Policy: The Federal Reserve's role in managing inflation and its mandate for maximum employment and price stability is mentioned. Monetary policy decisions by central banks, including interest rate adjustments and quantitative easing measures, can significantly influence market dynamics and asset prices.
Penny Stocks and Market Performance: The article highlights certain penny stocks that reached fresh 52-week highs despite overall market sell-off. Penny stocks, characterized by their low share prices and market capitalization, can be particularly volatile and may not always move in tandem with broader market indices.
Company Analysis and Fundamental Factors: Detailed analysis of individual penny stocks like Lee Enterprises, Castlight Health Inc., and Centennial Resource Development Inc. provides insights into company-specific factors driving their stock performances, such as earnings reports, product developments, and industry trends.
By incorporating these concepts into your investment analysis, you can better navigate market fluctuations and identify potential opportunities in both mainstream and penny stock segments.