People are attracted to penny stocks for the potential life-changing wealth the stocks can bring. However, the chance of hitting the jackpot is low. Instead, thereâs a much greater chance that youâll lose your investment entirely.
Donât let your hard-earned dollars go down the drain. I urge you to look at these companies first.
Tidewater Midstream & Infrastructure (TSX: TWM)
Since I began coverage of Tidewater last month, the little stock is already beating Enbridge hand over fist.
TWM data by YCharts.
A simple reason for Tidewaterâs outperformance is that it was a much cheaper stock than Enbridge at the time. Even after appreciating +13% in a short time frame, Tidewater is still very cheap.
At $1.48 as of writing, the stock trades at a price-to-cash-flow multiple of about 6.7. It trades at a +30% discount across 13 analystsâ mean 12-month target of $2.18 per share. In other words, thereâs almost 50% of near-term upside potential on the stock.
Last month, management reiterated the target of delivering 20% annualized adjusted EBITDA per-share growth over the next 24 months. If achieved, thereâs a good chance that the roughly 50% upside will be attainable over the next one to two years.
Whatâs more to like is that Tidewater offers a sustainable dividend yield of 2.7%, which can only add to shareholdersâ total returns.
Vermilion Energy (TSX: VET)(NYSE: VET)
Instead of buying penny stocks, which is purely speculative, youâll have a much better chance of double-digit returns from investing in Vermilion today.
The global mid-cap oil and gas producer strengthened its Canadian portfolio by making a smart acquisition for a quality business at a great price. With a diversified portfolio of high-netback businesses in Europe, North America, and Australia, there will be brighter days for Vermilion stock which is about 10% lower year to date.
Thomson Reutersâs analyst consensusâs 12-month target on Vermilion is 56.80 per share, which represents near-term upside potential of 39% from $40.82 per share as of writing.
Vermilion offers one of the safest dividends from the oil patch, as it has maintained or increased it on a per-share basis since 2003. Its eye-popping monthly dividend equates a yield of 6.76%. Combining Vermilionâs upside potential with its juicy dividend yield, the stock can deliver near-term total returns of nearly 46%!
Investor takeaway
Speculative investing in penny stocks can cost you a fortune. Invest in Tidewater or Vermilion for a much better chance of lucrative returns over the next 12-24 months. While you wait for the stocks to appreciate, you can earn nice income from their safe dividends.
