The Top 3 Penny Stocks to Buy Heading Into the Year-End

Andrew M. Santos

Diversification is an excellent strategy for investors. One important aspect of that, risk tolerance, can be difficult to manage without knowing your preferences. Investors prefer a safe bet. They don’t want to risk losing their money on an unproven company with little evidence in its favor. That is why penny stocks often do not make it into most portfolios.

Penny stocks lack the history and information and the liquidity of more established companies, which makes them riskier to invest in than those who have been around longer, such as Apple or Amazon.

Not every penny stock is a scam or a get-rich-quick scheme. Several of them have outstanding business models and solid growth prospects.

In addition, penny stocks are a great way for investors who want the thrill and adrenaline of more volatile investments. While there is nothing wrong with investing in ETFs or other lower-risk investment vehicles, the odd penny stock can round off your portfolio very nicely.

Overall, investing in penny stocks is just like investing in any other asset class. You have to understand the business model, growth prospects, and fundamentals of the enterprise. If it looks like a good fit for your portfolio, then you can go ahead and initiate a position without hesitating too much.

  • Arcos Dorados Holdings (NYSE:ARCO)
  • Regis Corporation (NYSE:RGS)
  • Invacare (NYSE:IVC)

Penny Stocks to Buy: Arcos Dorados Holdings (ARCO)

Source: 8th.creator / Shutterstock.com

Arcos Dorados Holdings is the master franchisee for McDonald’s in 20 countries across Latin America and the Caribbean.

It is the world’s largest independent McDonald’s franchisee, with system-wide sales numbers surpassing any other franchisee. One of the most successful restaurant chains in Latin America and the Caribbean, with over 2,255 restaurants across its region.

Last year was a tough one. The pandemic has been especially severe in Latin America because of the region’s political and economic fragility. Companies like Arcos Dorados became unfortunate casualties as a result of the situation.

Consolidated revenues totaled $2 billion, a 32.9% decrease as a result of the pandemic as well as of depreciation on several local currencies. Despite the pandemic, Consolidated Adjusted EBITDA margin contracted 6.3 percentage points to 3.7%. However, the numbers have gotten better.

ARCO’s second-quarter results were strong. Revenue increased 102% to $592 million, and adjusted EBITDA was $48.3 million, up 12.6% in constant currency on a two-year basis.

This shows that while Latin America delayed reopenings, things are getting back to normal. Drive-thru and delivery sales jumped 29% and 94% in constant currency, respectively, with digital sales producing 39% of total sales.

Latin American currencies are under pressure, but there could be some relief if commodity-based currencies start showing signs of recovery. This would increase demand from export markets and boost revenue growth on their side too.

It would have a knock-on effect on Arcos Dorados. Considering the stock has a negative three-month return of 19.5%, the time is ripe to invest in this one.

Regis Corp. (RGS)

RGS stock: the Regis corporation logo on their website's homepage

Source: Casimiro PT / Shutterstock

Regis is a beauty salon franchise operation and ownership. It sells branded products, but you would much more likely know it from its discount salon brands like Supercut or Cost Cutter.

Investing in asset-light businesses is all the rage these days. However, Regis Corp. deserves mention because it recently implemented a comprehensive restructuring plan that is starting to bear fruit.

Under the new model, franchisees will have control over their own destiny. The previous management structure had taken a “brand-agnostic” approach to strategy.

Under the plan, there was no distinguishing between salons that Regis owned directly and those it franchised. That old structure makes little sense anymore for Regis. The company has spent the last few years shedding nearly all of its company-owned locations and reinventing itself as a franchisor.

As part of the restructuring, the company is shaking up the upper management of their chief brands, naming a trio of new presidents to lead these prestigious salons around North America.

In announcing Q4 2021 results for the period ending June 30, 2021, the company reported $99 million in revenue, compared to $60 million last year. Core royalties and fees jumped 263% higher than in Q4 2020 to $27 million from $7 million.

One of the most interesting concepts coming out of the latest earnings report is the “Salon of the Future” concept. It is designed to ensure customer experience and provide robust ROI to stimulate unit growth. With shares down 32.4% in the last month, this is the ideal time to strike.

Penny Stocks to Buy: Penny Stocks: Invacare Corp. (IVC)

A man using a walker, about to stand from a chair.

Source: nuiza11/Shutterstock.com

Invacare specializes in the production and distribution of medical equipment for non-critical care settings. They have customers across multiple sectors, including healthcare providers such as hospitals or nursing homes, residential living operators, and government health services organizations.

The company reported $0.12 per share for the third quarter compared to the year-ago loss figure of $0.10 per share a year ago. Revenues came in at $224.2 million for September 2021.

It handily surpassed the $211.91 million reported last year. Operating loss was $3.5 million, a drop of $1.3 million. The marginal drop is because of higher SG&A expenses. The positive, on the other hand, are higher gross profit and more moderate restructuring costs.

The fourth quarter should be much better than the third, with improved net sales and profitability. However, according to the company, supply chain issues will continue to disrupt operations for the foreseeable future.

There is already a significant inventory backlog that is increasing with every passing day. On the bright side, it looks like things are only going to get better from here as vaccine adoption increases. With the stock dropping by 33.1% in the last three months, the stock is an ideal one for your portfolio.

With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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