Three ‘trending’ penny shares have had some significant catalysts this month, ranging from a suspension of shares to a new listing in the US on the NASDAQ.

Recently, I pitted three FTSE 100 portfolio staples against each other and now I would like to do the same with 4D Pharma (LSE: DDDD), Novacyt (LSE: NCYT), and Supply@ME Capital (LSE: SYME).

I am going to look at these shares as if I were in a casino and I was dealt all three. What company would I hit again (buy more), hold (keep) and fold (sell)?

Hold

Novacyt, a medical diagnostics company, was a star of the stock market last year – and even with the recent pull back to 720p, it is still 400% up on the year. The Novacyt share price sold off after its earnings report even though it had very positive sales growth to £277m from £11.5m in 2019. It wasn’t numbers but guidance that unsettled investors, as it stated that it expects sales of Covid-19 products to be strong for most of 2021 but it wasn’t clear beyond that.

I am not sure how Novacyt will utilise its increased cash reserves or its specialism in Covid-19 testing, therefore it is hard to wage where fair value is. I do believe that Covid-19 testing is here for the foreseeable future. Mr. Dealer, I’ll hold.

Fold

Supply@ME Capital (SYME) is a fintech firm; it allows companies to make money from their inventory. The idea is to allow businesses to generate cash flow from their unsold goods.

At the end of January, SYME requested a suspension of the listing of its shares pending publication of its results which meant for over a month, investors could not buy or sell SYME shares. After due diligence from the FCA, the shares recently started trading again at around 0.55p. Due to its true penny share status, there is arguably plenty of upside if SYME can prove its business model to be profitable. However, this would be a speculative investment and shares this size can be illiquid, which generally means wider bid-ask spreads, and greater price volatility. Mr. Dealer, I fold.

Hit

4D Pharma is a company pioneering development in the area of the human microbiome (the bacteria found in our gut).

Recently, 4D Pharma completed a merger with a US investment vehicle, which provides the company with a quote on the tech- and biotech-focused NASDAQ stock market under the ticker $LBPS. By dual-listing in the US, this should introduce the firm to a new pool of prospective investors.

Key figures within the business own 12.7% of the company which I believe demonstrates their confidence in 4D Pharma shares. Currently, 4D is not profitable and it is not forecast to become profitable over the next three years. Trading at 130p, this is a long-term play for me. Mr. Dealer, I’ll buy more.

Penny shares: risk v reward

Companies listed on the Alternative Investment Market (AIM), such as Novacyt and 4D Pharma, are provided with more regulatory flexibility than those on the main market so you can expect greater volatility. However, with careful diligence, the AIM can be a lucrative market for discerning stock pickers.

Thus, when faced with the decision to hit, hold or fold, I would hit 4D Pharma, hold Novacyt and sell SYME.

More reading

Joseph Clark owns shares in Novacyt and 4D Pharma. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Nevertheless, despite the sell-off, I remain confident in the longer-term potential for the company, so I have been buying more.

Why is Plug Power stock selling off?

Recently, Plug Power announced that there were some inaccuracies with its past financial reports. The fuel cell maker said that it would have to reissue some fiscal and quarterly results from 2018-2020. The company said that the mistakes didn’t affect the underlying business and that there were no issues raised regarding its fourth quarter 2020 and year-end results. Plug Power has also been swept up in the broader sell-off of growth stocks due to inflation fears that have caused treasury yields to spike.

What are the risks?

There are some things to be aware of, though, when it comes to Plug Power stock. In the last year, the company’s share price has had overall an incredible run, rising over 1,000%. Therefore, it could be argued that this sell-off recently isn’t overdone. The company was founded in 1997, and it has not yet demonstrated that its business model can be profitable. It reported a net loss of $476.3 million, in its last earnings report.

Tesla CEO Elon Musk has been a critic of hydrogen fuel cells, saying he believes they are unrealistic. However, General Motors and Toyota have stated that they are eager to embrace hydrogen.

What might the future hold for the business?

Recently, the company increased its 2024 billing target by more than 40% to $1.7 billion. JPMorgan projects the overall market opportunity for Plug Power to be greater than $200 billion, and expects it to show meaningful profits in 2023 to 2024. It recently upgraded Plug stock to overweight from neutral and maintained its price target at $65.

Why I am buying more Plug Power stock

Plug Power has ambitious plans and exciting future revenue targets, but of course these are speculative for the moment.  Yes, it isn’t profitable just yet but with clients like Amazon and Walmart, I am encouraged by the longer-term prospects for the company. The recent accounting errors are a cause of concern but these have no impact on current contracts, so I think they have provided a buying opportunity. I am happy to take the chance (again) on Plug Power. This is because in the future it has the potential to be a renewable energy heavyweight. Therefore, I am loading up on Plug Power stock here and lowering my average price.

More reading

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Joseph Clark owns shares in Plug Power, Tesla and Amazon. The Motley Fool UK has no position in any of the companied mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Recently, Wood said Invitae (NYSE: NVTA), a company that offers medical genetic testing, is the most underappreciated stock in her ARK Invest ETFs. Invitae closed Friday 12th March at $42.70, finishing the week over 20% higher after the CNBC interview. Despite the move, it remains below its all-time high of $61.59 set on 14th December 2020.

Cathie Wood’s “underappreciated” Invitae stock comments

Wood said Invitae, in the molecular diagnostics space, is probably one of the most important companies in the genomic revolution, and it is investing aggressively to become the leader in that space.

The ARK Invest founder stated that the disconnect for many peoples comes when they think of the lab testing industry, they think of Quest Diagnostics and Laboratory Corp, which she effectively believes are very mature companies, commoditised value stocks, and that Invitae is somewhat like Tesla in the automobile industry. Wood believes we will move away from one test for all medical practices and to much more personalised medicine, which will give just a few companies the lion’s share of the market.

Potential market for genetic testing

Invitae is a leader in genetic testing. It offers diagnostic predictive testing to help uncover and determine specific conditions or someone’s risks of developing certain diseases. Invitate forecasts that its total addressable market for genetic testing tops $150 billion. It highlighted the market for cancer screening and therapy selection to be the most promising, especially in older individuals.

Invitae has never turned a profit

There are some things to be aware of, though, when it comes to Invitae stock. Since it was founded in 2013, the company has never turned a profit. It reported a net loss of $608.9 million, an increase of nearly 150% year on year. In its annual report, the company stated it doesn’t expect to be profitable for quite some time as it is primarily focused on growing the business. 

Why I bought Invitae stock

Weighing everything up, I decided to start a small position in the company. Growth stocks like Invitae tend to be highly volatile, but due to what I perceive as the company’s great long-term potential, I can deal with that. For example, I would be willing to take a test if I can discover that I may be more at risk of diabetes or heart disease, so I think the market for Invitae could be massive. With its three-year revenue gain of 226.8%, I am happy to take the chance on this exciting company even though it has not yet proven its path to profitability.

More reading

Joseph Clark owns shares in Invitae and Tesla. The Motley Fool UK does not own shares in any of the companies mentioned in this article. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here are the main reasons why I am re-entering Rolls-Royce albeit tentatively, as I think there is a chance that we see a positive rise of the share price after earnings.

Rolls-Royce is expected to report its biggest loss ever

The market is already expecting the company to have its biggest ever loss on record so that isn’t likely to spook the share price if it is indeed reported. In fact, International Airlines Group recently reported a loss of £7.5 billion and its share price rose 3.5%; I am hoping that we might see something like that for Rolls-Royce’s shares.

Reasons the stock could rise

I am hoping that the management comes out speaking upbeat on its recovery, especially in terms of its aerospace division. This division manufactures and services engines for the airline industry and makes up 50% of the company’s total earnings. Therefore, with the vaccination roll-out going better than expected in the UK and improving globally, this is positive for Rolls-Royce’s main revenue stream especially as more airlines are now travelling than they did in the fourth quarter. Additionally, I hope we hear more from management about this and that they provide upbeat guidance for the rest of the year, especially with foreign holidays from the UK set to be allowed from 17^th May.

Reasons Rolls-Royce shares could fall

A key metric to focus on will be its liquidity position (cash). During the pandemic, the management team reacted quickly and raised money from a rights issue. They also took measures to cut-costs to make the business leaner, which I think has only made the company a more attractive proposition if it can survive this pandemic. However, if we were to hear that Rolls-Royce may need to do another round of financing, or if it raises concerns about its cash position being able to survive a longer-than-expected recovery, this could send the share price falling.

Why I am buying

Nevertheless, although the shares have recovered somewhat, they are still significantly down from Rolls-Royce’s pre-pandemic levels of over 600p. That’s why I think now, before its FY earnings, is a great chance to get into this stock. Therefore, I am buying more shares in this global brand in the hope of a boost after earnings, but I will be holding a little bit of money back in case a ‘buy the dip’ opportunity presents itself instead.

More reading

Joseph Clark holds shares in Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Shares of NIO fell after it reported a bigger than expected loss in its Q4 earnings, but also record revenues (over $1 billion). It has also been dragged down by the broader sell-off of growth and technology stocks. However, I think at these levels it is a bargain.

NIO stock keeps breaking targets

NIO said its sales in the Q1 of 2021 would reach 20,000, which would be more than five times the amount it sold during the same period of 2020. In the first two months of 2021, its combined sales totalled over 12,000 vehicles. January car deliveries, for example, were 352% up year on year and were its tenth month of double-digit growth.

EV market share

China is going to be the major electric vehicle (EV) consumer this decade. According to a report by Deloitte, China will hold 49% of the EV market share worldwide by 2030. And in 2021 Chinese auto sales are expected to grow 4% that’s 1.2 million cars. The Chinese government supports NIO, which is likely to boost its efforts and help retain its domestic market share.

I would be happy with NIO just trying to take claim as China’s number one EV company but it has stated it plans to enter the European market later this year, and a Deutsche Bank report in February showed that the company had posted job listings relating to its ambitions to grow in the US market.

Positive speculation

Shanghai Securities News said recently “Don’t be surprised to see NIO at Sinopec’s gas stations in the future, the partnership between the two is approaching!”. This could be a game-changer for NIO. The company uses a battery swap model compared to competitors where customers can pay a monthly fee. This works where customers ‘loan’ a battery, which they swap at any NIO station, therefore not having to deal with charge time and no upfront cost for the battery. If NIO and Sinopec were able to reach an agreement on allowing NIO to operate this service at some of its 30,000 stations, this could be very positive for NIO’s expansion.

Recent analyst coverage

Deutsche Bank analyst Edison Yu said that NIO’s revenue in Q4 were largely in line with expectations and its guidance for the first quarter was impressive, while sales could start overseas during the year.

The team raised its full-year sales estimate for NIO by 6,000 units to 96,000 units. They also reiterated their $70 price target on NIO, and see the recent stock weakness as a buying opportunity.

Could it fall further?

In the last year, NIO stock has had overall an incredible run rising over 1000%. Therefore it could be argued that this sell-off recently isn’t overdone, and actually quite small compared to its rise over the last year.

Also, a big risk to NIO isn’t just Tesla but the challenge from established car makers, such as Mercedes and VW. These two giants have both vowed and set aside billions of dollars to spend on its EV offerings over the next few years. They benefit from already being established in all geographical markets that NIO hopes to enter.

Summary

I bought NIO originally for the long term but with the recent sell-off, I think in the short term there is great potential for capital growth. While the levels stay sub $45, I will keep loading up!

More reading

Joseph Clark owns shares in NIO. The Motley Fool UK has no position in any company mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But these are dividend giants, and with the chance of strong capital growth I thought it was time I had a closer look at these UK portfolio staples.

I am going to look at these stocks as if I was in a casino and I was dealt all three. What share would I hit again (buy more), hold (keep) and fold (sell)?

Hold

GSK has been one of the worst performers of the FTSE 100 in the last 12 months, and is trading at a material 25% discount to its peer group. Whilst it has been a disappointment for a fair amount of time now, with a price-to-earning (P/E) ratio (10.8x) and a yearly dividend yield (6.6%), I would not be selling!

It is not just the great income you can get from this stock, but there are catalysts that can get this share price back on track, such as good results on its Covid-19 vaccine candidate, which recently reached phase 2 trials. Therefore Mr. Dealer, I’d hold.

Fold

AstraZeneca’s (LSE: AZN) recent results and future guidance were good. A lot of what I think is positive news has been lost around the controversy of the vaccine, particularly with the EU questioning its efficacy in the over 65s and then doing a U-turn and blocking shipments of the vaccine to Australia.

Fourth-quarter pre-tax profit, revenue and core earnings per share rose, and it guided for growth in the low-teens for 2021. Its fourth-quarter profit before tax was $1.17 billion, significantly higher than the last year’s $240 million.

Positive news, yes… but I can’t see a catalyst to push the share price up in the near future. I like the stock but it would be my last choice of the three to take a position in right now. Mr. Dealer, fold.

Buy

Unilever is one of the world’s largest consumer goods companies (with brands like Ben & Jerry’s, Dove and Vaseline) and has seen its share price drop over 10% since February. Every day, almost a third of the global population (approximately 2.5 billion people) use Unilever products.

I think now is a good opportunity to start a position into a great company that should provide me with dividend income and growth. Unilever shares have been paying dividends since 1929, and it currently offers an attractive combination of dividend yield (3.8% as of March 2021) and dividend growth (a five-year average of 5.3%). Mr. Dealer, I’d buy.

Summary

In conclusion, I wouldn’t shy away from looking at adding any of these shares to my portfolio, as I think all offer a good chance of capital growth as well as dividend income. To me the recent declines in the share prices give a great opportunity to start a position or add some more. But when faced with the decision to hit, hold or fold, I would hit Unilever, hold Glaxo and sell Astra.

More reading

Joseph Clark has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.