Exploring the Best Penny Stocks Worth Owning: Lessons From 2019

There’s a persistent misconception that all penny stocks—equities trading below $5 per share—are inherently risky ventures best avoided by serious investors. However, this blanket dismissal overlooks an important reality: some of these depressed-valuation securities represent genuinely compelling investment opportunities. The gap between perception and reality stems from multiple factors: prolonged commodity market weakness, strategic corporate restructuring, inopportune timing of public offerings, and simple market inefficiency. Understanding this distinction is crucial for identifying which penny stocks truly merit investor attention.

Why Certain Penny Stocks Deserve Consideration

The prevailing wisdom suggests that cheap stocks are cheap for a reason—and often that’s true. Many young companies trading at low prices suffer from fundamental business challenges, and early investors frequently experience disappointment. Yet dismissing the entire penny stock universe overlooks the reality that depressed valuations sometimes reflect temporary setbacks rather than permanent impairment. A handful of low-priced equities emerge as promising prospects precisely because market pessimism has detached from underlying business fundamentals. The challenge lies in distinguishing between companies facing cyclical headwinds and those battling structural decline.

Industrial Dynamics: Steel and Supply Chain Shifts

Consider the steel sector, where AK Steel Holding Corporation (NYSE: AKS) exemplifies a company caught in an industry experiencing significant disruption. The steel business, contrary to popular belief, is far from stable and predictable. Supply and demand imbalances create constant volatility, making it extraordinarily difficult for major producers to execute long-term strategic plans. For 15 years prior to 2019, AKS stock had essentially flatlined, with seemingly every adverse development striking at the worst possible moment.

However, underlying conditions were shifting. Political initiatives aimed at leveling competitive disparities between domestic and international steel producers, combined with emerging strength in global economic activity, positioned steel companies into favorable market conditions. For a company that had endured years of underperformance, such shifts create pivotal turning points. The convergence of policy support and macroeconomic momentum offered AK Steel a window of opportunity that hadn’t existed during its extended period of stagnation.

Pharmaceutical Rights and Strategic Transformation

The pharmaceutical licensing sector presented a different challenge through PDL BioPharma (NASDAQ: PDLI). Originally conceived as a vehicle for acquiring drug patents and marketing rights—assets that would generate reliable income streams—PDL initially succeeded in this model. As the industry evolved, however, pharmaceutical developers increasingly internalized these functions, eliminating the need for specialized licensing intermediaries. This structural shift left PDL BioPharma struggling to acquire attractive assets at prices permitting meaningful dividend distributions.

The consequence: PDLI’s valuation compression was severe. Stock that once traded above $30 per share had deteriorated to merely $3.77, reflecting a fundamental business model disruption. Yet companies undergoing such transitions occasionally emerge stronger after restructuring, though recovery remains uncertain and dependent on management execution.

Gaming and E-Commerce: Navigating Competition

Two consumer-focused companies, Groupon (NASDAQ: GRPN) and Zynga (NASDAQ: ZNGA), shared a common narrative: spectacular public offerings followed by prolonged underperformance. Groupon debuted in 2011 at $28 per share but rapidly descended into penny stock territory within a year, where it remained trapped. The daily-deals marketplace had entered a saturated competitive environment while its pre-IPO growth trajectory simply couldn’t be sustained. Net income peaked in 2012; revenue peaked in 2015. The company faced legitimate structural challenges.

Yet by 2019, Groupon appeared to be crystallizing a more sustainable business formula. Analysts anticipated that while revenue might contract, earnings-per-share expansion could accelerate—a shift that might catalyze renewed investor interest and upward momentum.

Zynga’s trajectory paralleled Groupon’s in some respects. The gaming company behind Words With Friends and FarmVille had seen its fortunes decline precipitously after Facebook discontinued an exclusivity arrangement in 2012, devastating what had been a promising IPO from the previous year. The stock plummeted into sub-$5 territory and remained there subsequently.

Yet Zynga exhibited catalysts for potential revival. In 2017, founder and CEO Mark Pincus voluntarily relinquished corporate control by eliminating dual-class voting structures that had concentrated power in his hands. While Pincus alone wasn’t responsible for the company’s growth limitations, concentrated governance structures certainly hadn’t assisted. More importantly, revenue and profit were expected to expand—potentially unlocking the value creation that had eluded investors since the company’s troubled IPO.

The Investor Takeaway

Identifying best penny stocks requires rejecting simplistic generalizations about low-priced equities while maintaining appropriate skepticism about downside risks. The four companies profiled above represented a spectrum of opportunities: a cyclical industry play poised for recovery, a platform facing structural transformation, and two consumer businesses emerging from competitive crucibles toward improved fundamentals. Success with penny stocks demands rigorous analysis of whether depressed valuations reflect temporary setbacks or terminal decline—a distinction that separates opportunity from hazard.