Penny Stock Pitfalls: 3 Ticking Time Bombs to Bail On Now
There is an argument that investors should avoid all stocks trading under $5. Therefore, theoretically, the list of penny stocks to sell is very long.
According to Finviz.com, there are 1,511 stocks listed on the Nasdaq with a market capitalization of $300 million or higher. On the NYSE, there are approximately 1,958 stocks with a market cap of over $300 million. The former has 138 trading under $5, while the latter has 105.
The task at hand is to recommend three penny stocks that are ticking time bombs. These companies are likely losing money now and well into the future, have significant debt, and are generally businesses with little in the way of prospects.
And, of course, as all penny stocks do, they trade under $5.
Here are my three to sell now.
Penny Stocks to Sell: MultiPlan (MPLN)
The depressing thing about all three of my penny stocks to sell is that I’ve spoken positively about two at some point. It’s time to admit some of my mistakes.
MultiPlan (NYSE:MPLN) provides the U.S. healthcare industry with data analytics and end-to-end cost management, payment, and revenue integrity solutions.
I don’t believe I’ve ever written anything positive about the data analytics company.
I did call the combination of MultiPlan with Churchill Capital Corp. III, a SPAC (special purpose acquisition company), “an unmitigated disaster” in July 2021. It was one of the many iffy SPACs from financier Michael Klein, whose firm was acquired by Credit Suisse in February 2023. I guess he needed a real job after the SPAC debacle.
Anyway, its shares are down 63% in 2024 and 94% since I wrote about it in July 2021.
MultiPlan has been sued for price fixing. It uses algorithms to recommend the prices health insurers should pay physicians for out-of-network medical claims.
“When patients see a medical provider outside their plan’s network, insurers often send their claims to MultiPlan, which uses proprietary algorithms to recommend how much to pay,” stated the New York Times on May 1. It continued:
“By driving down payments to providers, MultiPlan and the insurers can collect higher fees for themselves, The Times reported, but this can lead to higher bills for patients, who may get charged the unpaid balance.”
In sports, they call it collusion. It’s illegal.
Virgin Galactic (SPCE)
I’ve been a fan of Richard Branson’s for decades, so it makes sense that I’d make positive comments about Virgin Galactic (NYSE:SPCE), the U.K. billionaire’s push into space. The shares have lost 77% of their value over the past year.
The last time I wrote about SPCE stock was January 2022. Its shares traded below $9. Today, they’re under a dollar. At the time, I said SPCE stock looked like dead money until 2022 test flights for the space tourism company were announced.
I’d been very enthusiastic about Virgin Galactic’s future potential; however, between Branson selling off 80% of Virgin Group’s holdings and revenue-generating flights into space getting delayed by at least two years.
The Motley Fool’s Rich Smith recently discussed Virgin Galactic’s Galactic 07 space flight to occur sometime after June 8. It will be Virgin Galactic’s seventh revenue-generating space flight, expected to net the company $1 million for the four paying passengers.
Despite the revenue generated, it’s expected to burn more than $120 million in the latest quarter. With no flights after this one, the losses will be massive until it has a new generation of spaceplanes.
Sell now while its shares are worth something.
FuboTV (FUBO)
I last wrote about FuboTV (NYSE:FUBO) in June 2022. Hiring three executives was a sign it was still ramping up its revenue-generating opportunities. I stated:
“The company’s current Altman Z-Score is 0.99. Anything less than 1.81 suggests a bankruptcy is possible within the next 24 months. However, should its cash flow improve over the remainder of 2022, it could get to 1.81 or higher, putting its financial situation on better ground.”
Today, according to GuruFocus.com, its Altman Z-Score is -1.72, 274% worse than two years ago.
What killed FuboTV, which focuses on sports, was the sports streaming service to be launched later this year by Walt Disney (NYSE:DIS), Fox (NASDAQ:FOX), and Warner Bros. Discovery (NYSE:WBD).
While it’s filed an antitrust suit against the trio’s service and strongly believes in the merits of its case, all three of these companies have much deeper pockets. Investors must be realistic about the company’s chances.
Ultimately, FuboTV loses money and will for many quarters to come. Bankruptcy proceedings could be in the future.
This is not a road most investors should go down.
On the date of publication, Will Ashworth 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.
