- Penny stocks come with higher than average risk, but some risks can be mitigated by following the insiders.
- OPKO Health is gaining traction in one segment and is on the cusp of right-sizing another, paving the way for profits.
- Southland Holdings is a specialty construction stock targeting infrastructure projects, and insiders are buying.
Penny stocks are riskier than others for many reasons, including profits and liquidity. Penny stocks trade for pennies a share, often at deep discounts to peers, because they haven’t yet generated profits for their owners and may not do so soon. Profits are the most significant factor for a publicly traded stock and its share prices because they factor into liquidity, which is insufficient for most serious investors.
Markets with low trading volume have low liquidity. They cannot absorb orders quickly or efficiently, so even small orders can greatly impact prices. One way to limit the risk is to follow the insiders because they know best how a company performs. Insiders have little reason to buy a stock unless business is good or getting better. Today, we’re looking at two penny stocks with catalysts for higher share prices that the insiders are buying.
OPKO Health insiders keep buying the stock
Opko Health Inc (NASDAQ:OPK) turned up on Insidertrades.com radar in January as one of the hottest insider buys for the New Year. At the time, seven insiders had made nine transactions, putting it at the top of the list. Insiders continued the trend in February, adding two more transactions. Those were made by Dr. Phillip Frost, the company’s chairman and CEO, who now holds nearly 30% of the stock. Together, insiders own more than 40%, and the amount can be expected to grow. Insiders have only bought the stock for the last three years, and the sell-side sentiment is solid.
Institutions own a slim 22% of the health company but have been buying on balance for the last year. Analysts are more bullish, rating the stock a firm Buy with a price target triple-digits above the price action. The consensus price target of $3.85 is nearly 300% above the price action, and the low target of $2 implies a deep-value opportunity and 100% upside.
Potential catalysts for the company are an FDA approval received last year and industry normalization. The company’s diagnostic business, heavily dependent on COVID-19, is dragging on profitability but is expected to be right-sized in 2024 through cost cuts and capacity reduction. The FDA approval is for Ngenla, a treatment for children with deficient levels of growth hormones. The company also has a promising pipeline, including two additional approvals for Ngenla and several antibody-type therapies for solid tumors, leukemia, and hematologic malignancies.
Southland Holdings insiders shift gears, start buying stock
Southland Holdings Inc (NYSE:SLND) is a specialty construction company focused on infrastructure projects. The company’s two segments include civil and transportation, encompassing all aspects of infrastructure-related construction, pipelines, waterways, roads, bridges, and facilities.
The stock came under intense pressure in 2023 due to unexpected losses and insider selling, but a bottom is now in play. Insiders, who had primarily sold since the IPO, shifted gears in December and started buying the stock. Buyers include the CEO, the COO and a director; insiders and large shareholders own about 90% of this stock.
Analysts are bullish on Southland Holdings. Insidertrades.com tracks two analysts with current ratings, and they have it pegged at a firm Moderate Buy. The price target implies a deep value with 60% upside at the consensus midpoint and 50% at the low end of the range. Among the catalysts for the stock is a slate of new contracts that promise to drive business in 2024 and 2025. The contracts are valued at nearly $500 million and include upkeep on some of America’s most iconic landmarks, such as the RFK Bridge and the San Francisco-Oakland Bay Bridge.
The chart of SLND stock shows a market ready to rebound. The market sell-off overextended in 2023 and is now showing a solid buy signal ahead of the Q4 earnings release. The Q4 results may not be enough to catalyze a reversal, but the guidance probably will. The critical detail will be margin and profitability and how it influences the outlook for 2023. As it is, analysts expect to see revenue flat with margin significantly improved and profits flowing. 