In this article, we will discuss the 10 Best Fundamentally Strong Penny Stocks to Invest In.
As per Royce Investment Partners, small caps saw a rebound in Q3, exhibiting a strong advance on both an absolute and relative basis. As per the investment management firm, the Russell 2000 Index saw an increase of ~9.3% in Q3 2024, surpassing the large-cap Russell 1000 Index (which rose ~6.1%) and the mega-cap Russell Top 50 Index (which increased ~4.2%). The investment firm believes that small caps see a long road back to the top, with large caps holding a commanding lead through the initial 9 months of 2024.
On a YTD basis, the Russell 2000 saw an increase of ~11.2% compared to the respective gains of ~21.2% and ~27.3% for the Russell 1000 and Russell Top 50, in the third quarter of 2024. The investment firm said a confluence of factors might support small-caps in sustaining market leadership. The still-growing US economy, together with a more typical interest rate environment, might support small-cap leadership.
Investment Themes in the US
As per Russell Investments, the US equity-market leadership reversed during Q3 2024, with small-cap stocks surpassing the returns delivered by their large-cap counterparts. Also, the value factor outperformed the growth factor. This means there was a significant pivot from the first 2 quarters of 2024, during which market returns were dominated by the US large-cap growth stocks— the Magnificent 7, to be precise.
Russell Investments highlighted that, from Q2 2024 to Q3 2024, there was a moderate change in the US average daily turnover, with $578.8 billion in Q3 2024 as compared to $581.5 billion in Q2 2024. Q3 2024 saw a shift in investor focus from high-flying tech stocks to more traditional sectors. Small-cap and value stocks surpassed the performance of large-cap and growth stocks, thanks to the broader market rotation. Moreover, utility stocks saw significant traction due to higher investments in energy infrastructure in a bid to support the elevated demand from AI and data centers.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Expectations for 2025
Wall Street experts believe that the shifts in monetary policy, sectoral innovation and developments, a favorable interest rate environment, and supportive regulatory environment are expected to fuel growth in small and emerging stocks over the next year.
As per Francis Gannon, Co-Chief Investment Officer, and Managing Director of Royce Investment Partners, earnings form the foundation for long-term performance. This means that earnings tend to support the broader market over the long term. He noted that the Russell 2000 saw a near-record number of companies having no earnings, with a total of ~44.6% (as of September end). Despite this, the earnings growth for the small-cap companies that have them has been estimated to be higher than large-cap ones in 2025.
Chuck Royce, Founder and Senior Advisor at Royce Investment Partners, believes that the lower rates are expected to help the M&A activity. The potential buyers have been waiting for the US Fed to act before they go ahead with acquisitions. He believes that many small-caps want to get merged. Therefore, there are expectations of more strategic buyouts moving forward.
With these trends in view, let’s look at the best fundamentally strong penny stocks to invest in.
A financial analyst at his computer monitor, tracking the public company’s investments.
Our Methodology
To list the 10 Best Fundamentally Strong Penny Stocks to Invest In, we used Finviz and Yahoo screeners to extract stocks trading under $5. Next, we selected the companies that have reliable 3-year revenue and 3-year net income growth rates. Finally, the stocks were arranged in ascending order of their hedge fund holdings, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Fundamentally Strong Penny Stocks to Invest In
10) China Shenhua Energy Company Limited (OTC:CUAEF)
Stock Price as of 4 November: $4.2
3-Year Revenue Growth: ~5%
3-Year Net Income Growth: ~9.03%
Average Upside Potential: 5.5%
Number of Hedge Fund Holders: N/A
China Shenhua Energy Company Limited (OTC:CUAEF) is engaged in the production and sale of coal and power, railway, port, and shipping transportation businesses in the People’s Republic of China and internationally.
China Shenhua Energy Company Limited (OTC:CUAEF) released major operational data in September 2024. Its gross power generation saw an increase of 32.9% on the YoY basis to 21.98 billion kwh. Its total power output dispatch rose by 33.7% YoY to 20.77 billion kwh. The main reasons for the growth in gross power generation and total power output dispatch were higher power demand in the regions where China Shenhua Energy Company Limited (OTC:CUAEF)’s generator units are located, the growth of power generation brought by the new power generator units, and the lower base of the same period last year.
Wall Street experts opine that improving operating efficiency after the overhaul of coal-to-olefin production equipment should continue to aid polyethylene sales. Furthermore, a rise in the sales volume of purchased coal and power output dispatch might also result in higher revenue. The analysts opine that China Shenhua Energy Company Limited (OTC:CUAEF)’s growth potential is linked to its diversified energy portfolio.
Considering that its core operations revolve around coal production, coal-fired power generation, and an integrated coal transportation network, the company’s balanced structure offers resilience in the short to medium term, which should help China Shenhua Energy Company Limited (OTC:CUAEF) achieve long-term growth.
As per Wall Street analysts, the shares of China Shenhua Energy Company Limited (OTC:CUAEF) have an average price target of $4.43.
9) Zijin Mining Group Company Limited (OTC:ZIJMF)
Stock Price as of 4 November: $2.1585
3-Year Revenue Growth: ~12.4%
3-Year Net Income Growth: ~30.3%
Average Upside Potential: Over 100%
Number of Hedge Fund Holders: N/A
Zijin Mining Group Company Limited (OTC:ZIJMF) is a mining company that is engaged in the exploration, mining, processing, refining, and sale of gold, non-ferrous metals, and other mineral resources in Mainland China and internationally.
Wall Street analysts opine that Zijin Mining Group Company Limited (OTC:ZIJMF)’s well-diversified product portfolio of precious and base metals and diversified operations should continue to act as potential tailwinds. Fitch Ratings expects that the company’s product diversification will further enhance with the ramp-up of its newly acquired lithium assets from 2025 and onwards. The firm also expects Zijin Mining Group Company Limited (OTC:ZIJMF) to stick to its acquisitive strategy to achieve a long-term goal of becoming a top miner globally by 2030.
In mid-April, Fitch Ratings highlighted that the company’s EBITDA is expected to remain strong as a result of higher gold and copper output. The production output additions are expected to be contributed by the expansion of existing projects like Julong in Tibet and Timok in Serbia and newly acquired projects.
On 9th October 2024, Zijin Mining Group Company Limited (OTC:ZIJMF) and Gold Source International Holdings Company Limited (a wholly-owned subsidiary of the company) entered into a share purchase agreement with Newmont Corporation and Newmont Golden Ridge Ltd (a wholly-owned subsidiary of Newmont, the Target Company). It was proposed that Gold Source International will acquire 100% of the equity interest in the target company, which is being held by Newmont for the purchase price of US$1 billion. The Akyem Gold Mine has favorable mineralisation conditions and significant potential for exploration and reserve increment.
Wall Street remains optimistic about this transaction, which aligns with Zijin Mining Group Company Limited (OTC:ZIJMF)’s development strategy and is beneficial for strengthening the resource reserves of the company’s gold segment, increasing its mine-produced gold output and supporting the realization of the targets of the company’s production volume plan for upcoming 5 years.
As per Wall Street analysts, the shares of Zijin Mining Group Company Limited (OTC:ZIJMF) have an average price target of $19.49.
8) Reit 1 Ltd (OTC:RETDF)
Stock Price as of 4 November: $4.16
3-Year Revenue Growth: ~8.2%
3-Year Net Income Growth: ~13.5%
Average Upside Potential: 87%
Number of Hedge Fund Holders: N/A
Reit 1 Ltd (OTC:RETDF) is engaged in the acquisition, management, and lease of real estate property. It holds real estate for commercial and industrial use mainly in the central region of Israel.
Reit 1 Ltd (OTC:RETDF) concluded Q2 2024 with a double-digit improvement in its main operational parameters, the NOI and the real FFO. The company was able to maintain high occupancy rates and saw an improvement in the occupancy rate in the area The offices, that increased to ~91.6% as compared to about 90% in the previous quarter of the year. Reit 1 Ltd (OTC:RETDF)’s strong results were mainly aided by the strength of the fund’s asset portfolio.
Wall Street analysts opine that the company’s growth is expected to be aided by the increased diversification primarily in industrial and logistics facilities. Reit 1 Ltd (OTC:RETDF)’s growth strategy revolves around geographic and sectoral diversification, development opportunities, and refurbishment and upgradation of existing properties.
Reit 1 Ltd (OTC:RETDF), in its presentation dated 30th June 2024, upgraded its 2024 NOI forecast from ILS 452 million – ILS 462 million to ILS 469 million – ILS 474 million. Also, it has upwardly revised its 2024 adjusted FFO from ILS 303 million- ILS 313 million to ILS 324 million – ILS 329 million. Reit 1 Ltd (OTC:RETDF) continues to develop and improve its property portfolio while, at the same time, remaining focused on increasing its sectoral and geographic diversification.
In H1 2025, Reit 1 Ltd (OTC:RETDF) expects to finish the construction of the logistics property in the house Shemesh. The company continues to market and improve the leading employment park in Ra’anana.
As per Wall Street, the shares of Reit 1 Ltd (OTC:RETDF) have average target price of $7.80.
7) Morgan Advanced Materials plc (OTC:MCRUF)
Stock Price as of 4 November: $3.22
3-Year Revenue Growth: ~8.2%
3-Year Net Income Growth: ~18.04%
Average Upside Potential: 13.7%
Number of Hedge Fund Holders: N/A
Morgan Advanced Materials plc (OTC:MCRUF) is a materials technology company. It is engaged in the engineering of ceramics, carbon, and composites. The company operates via Thermal Products, and Carbon and Technical Ceramics divisions.
Wall Street analysts remain optimistic about Morgan Advanced Materials plc (OTC:MCRUF)’s differentiated positions in the faster-growing markets including semiconductors, healthcare, clean energy, and clean transportation as well as across its core markets which the company expects to grow strongly. This will support its strong organic revenue and profit growth. Morgan Advanced Materials plc (OTC:MCRUF), in its August 2024 investor presentation, highlighted its expectations of organic growth, which should be towards the higher end of the 4%-7% range over the upcoming 4 years.
The company’s margins remain well-underpinned and should progress towards the top of its 12.5%-15% range. Therefore, Morgan Advanced Materials plc (OTC:MCRUF) remains well-placed for a period of strong organic growth, supplemented by bolt-on acquisitions. Industry experts continue to see strong demand for the company’s products which support its wide-band-gap power semiconductor market, driven by the clean energy and clean transportation. Morgan Advanced Materials plc (OTC:MCRUF) anticipates that conventional semiconductor market should grow strongly over the upcoming few years as and when digitisation progresses further and AI demand grows.
Moving forward, the experts believe that organic revenue, continuing profit growth and accretive M&A should form base for the significant EPS growth. Also, there is optimism around Aerospace market amidst the recovery and expansion of air travel. These factors, together with delivery of new and more efficient aircraft and engine models, should fuel demand for Morgan Advanced Materials plc (OTC:MCRUF)’s consumable products.
As per Wall Street analysts, the shares of Morgan Advanced Materials plc (OTC:MCRUF) have an average price target of $3.66.
6) Luk Fook Holdings (International) Limited (OTC:LKFLF)
Stock Price as of 4 November: $1.989
3-Year Revenue Growth: ~20.04%
3-Year Net Income Growth: ~20.2%
Average Upside Potential: 10.6%
Number of Hedge Fund Holders: N/A
Luk Fook Holdings (International) Limited (OTC:LKFLF) is an investment holding company, which is engaged in sourcing, designing, wholesaling, trademark licensing, and retailing various gold and platinum jewellery, and gem-set jewellery products.
Wall Street analysts believe that Luk Fook Holdings (International) Limited (OTC:LKFLF)’s growth prospects are expected to be aided by its asset-light model, which should enable the company to expand into lower-tier cities in China. The firm’s focus on affordable luxury and its strong network of licensed stores provide a healthy foundation for future growth. The analysts are optimistic about Luk Fook Holdings (International) Limited (OTC:LKFLF) as a result of its strong licensing model and healthy post-pandemic recovery.
The company’s strategy revolves around the successful use of licensing, which led to the expansion of its brand reach across Mainland China and fortified Luk Fook Holdings (International) Limited (OTC:LKFLF)’s position in Hong Kong/Macau and several other international markets. The company continues to focus on cost efficiency and store optimization and remains well-placed to manage potential rental cost hikes.
Luk Fook Holdings (International) Limited (OTC:LKFLF)’s successful reinvigoration of tourist sales and a lower gold hedging ratio should help it to capitalize on rising gold prices. The company highlighted that the decline in same-store sales in the Mainland market (which includes self-operated shops and licensed shops) and the Hong Kong market narrowed since September. From 1 October – 14 October 2024, its overall same-store sales performance demonstrated some improvements as compared to Q2.
The mainland government continues to work on boosting domestic demand. In hopes of improved macroeconomic conditions and recovery of retail sentiment, its retailing business should regain its growth momentum. Luk Fook Holdings (International) Limited (OTC:LKFLF) is optimistic about its mid-to-long-term business prospects and it will continue to expand in the Mainland market.
As per Wall Street analysts, the shares of the company have an average price target of $2.20.
5) Impax Asset Management Group Plc (OTC:IPXAF)
Stock Price as of 4 November: $4.92
3-Year Revenue Growth: ~18.2%
3-Year Net Income Growth: ~23.1%
Average Upside Potential: ~49%
Number of Hedge Fund Holders: N/A
Impax Asset Management Group Plc (OTC:IPXAF) is a publicly owned investment manager. With the help of its subsidiaries, the company offers investment services to funds specializing in the environmental markets sector, emphasizing alternative energy, water, and waste sectors, primarily in the UK.
Market experts opine that the opportunities to invest in the transition to a more sustainable economy are multiplying amidst ongoing challenges in the wider asset management industry. Impax Asset Management Group Plc (OTC:IPXAF) continues to focus on building out its differentiated positioning via increasing its direct distribution capability, diversifying product offerings, and focusing on reporting strong investment returns, while at the same time carefully managing the costs.
Impax Asset Management Group Plc (OTC:IPXAF)’s institutional channel and healthy new business pipeline are expected to act as tailwinds. Wall Street analysts remain optimistic about the company’s strong financial position, which stems from its high levels of cash reserves and no debt. Impax Asset Management Group Plc (OTC:IPXAF)’s cash reserves, including amounts invested in money market funds, came in at £60.8 million at the period-end (H1 2024).
The company is likely to benefit from sectoral tailwinds. The rise in the severity of issues linked to climate change, such as weather-related damage, continues to feature in both the public and offline comments of leading major investment institutions globally. This will raise the likelihood that allocations to investment areas in which Impax Asset Management Group Plc (OTC:IPXAF) has expertise will increase. The company’s investment team has been looking for mispriced opportunities and remains focused on constructing portfolios that should benefit from an improvement in secular and/or cyclical market drivers.
As per Wall Street analysts, the shares of Impax Asset Management Group Plc (OTC:IPXAF) have an average price target of $7.33.
4) Dynacor Group Inc. (OTC:DNGDF)
Stock Price as of 4 November: $4.20
3-Year Revenue Growth: ~21.7%
3-Year Net Income Growth: ~30.6%
Average Upside Potential: ~29.5%
Number of Hedge Fund Holders: N/A
Dynacor Group Inc. (OTC:DNGDF) is a dividend-paying industrial gold ore processor, which is headquartered in Montreal, Canada. It is engaged in gold production via the processing of ore purchased from the ASM (artisanal and small-scale mining) industry.
Wall Street analysts believe that organic and acquisitive growth strategy should help Dynacor Group Inc. (OTC:DNGDF) develop its unique business model in other jurisdictions. Since scale does matter in the gold mining industry so that unit costs can be managed, analysts believe that the company remains well-positioned in this regard given its proven history of profit and growth with over 13 consecutive years of profit and 5 plant capacity increases from 300 tpd to 500 tpd since 2018.
The company’s strategic focus revolves around expanding its production capabilities and diversifying its asset portfolio. Dynacor Group Inc. (OTC:DNGDF) plans to make investments of up to US$13 million in capital expenditure. This investment is expected to be used at its Veta Dorada plant for new equipment to improve efficiency, increase tailing pond capacity, and develop new projects in other jurisdictions.
For FY 2024, Dynacor Group Inc. (OTC:DNGDF) expects sales in the range of US$ 265 million – $285 million, reflecting an increase of 6% – 14% on the YoY basis. It expects net income in the range of US$12 million – $15 million. Moving forward, the economies of scale are expected to aid Dynacor Group Inc. (OTC:DNGDF)’s operating margins.
Wall Street remains optimistic about the company’s 2030 targets, which include sales of US$1 billion and 4 new processing plants (up to US$70 million investment in Latin America and Africa). In Q2 2024, Dynacor Group Inc. (OTC:DNGDF) saw total sales of $67.4 million as compared to $64.5 million in Q2 2023. The $2.9 million increase was driven by higher average gold price partially offset by lower quantities of gold ounces sold because of lower grades of ore processed.
Wall Street analysts provided an average price target of $5.44.
3) BRF S.A. (NYSE:BRFS)
Stock Price as of 4 November: $4.52
3-Year Revenue Growth: ~9.01%
3-Year Net Income Growth: ~27.03%
Average Upside Potential: ~3%
Number of Hedge Fund Holders: 10
BRF S.A. (NYSE:BRFS) is a food processor having a portfolio that includes established brands in Brazil and abroad.
Wall Street analysts are optimistic about BRF S.A. (NYSE:BRFS)’s BRF+ program. With a focus on enhancing efficiency and strengthening its product portfolio, the program should continue to aid profitability in the near term. This can fuel its bottom line, even where sales underperform expectations. The company’s BRF+ program focuses on delivering efficiency gains and portfolio optimization. If the company can maintain the momentum of the BRF+ initiative, it can result in sustained improvements in margins and overall financial health.
Moving forward, the successful implementation of the BRF+ program and expectations of strong performance in Brazilian and international markets should act as tailwinds. BRF S.A. (NYSE:BRFS) targets to obtain 40 new permits by year-end in a bid to continue its expansion, with a strong emphasis on the Middle East and North Africa (MENA) region. Furthermore, it remains optimistic about maintaining sales volumes and exploring potential investments to address the market demand.
Wall Street believes that the company’s strong brand presence and premium pricing strategy should fuel its profitability. BRF S.A. (NYSE:BRFS)’s capital allocation strategy can include dividends, share repurchases, and both organic and inorganic growth.
Its expansion into new markets, mainly in the Middle East, demonstrates its commitment to diversification and capitalizing on growth opportunities. The company’s operational efficiency and strategic focus on premium products and brands place it well for continued success in the global market.
As per Wall Street analysts, the shares of BRF S.A. (NYSE:BRFS) have an average price target of $5.00.
2) Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG)
Stock Price as of 4 November: $1.97
3-Year Revenue Growth: 10.4%
3-Year Net Income Growth: 12.2%
Average Upside Potential: ~21%
Number of Hedge Fund Holders: 13
Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG) is engaged in the generation, transmission, distribution, and sale of energy in Brazil.
As per Wall Street analysts, Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG) continues to focus on efficiency, customer-centricity, and investment in regulated sectors, including higher investments in distribution, transmission, and natural gas. It also focuses on infrastructure development and energy transition. Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG) emphasized improving power supply quality and reducing power outages. It is also investing in energy transition, with hydrogen as a critical component.
The company plans to continue its investment strategy, mainly in regulated businesses within Minas Gerais. Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG) demonstrated consistent growth and profitability over the past 3 years, with a strong focus on customer-centricity and efficiency. Wall Street believes that its investments in infrastructure should improve power supply reliability and support energy transition.
Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG)’s strategic approach remains focused on improving service quality and increasing investments in important sectors. With a clear emphasis on the future, the company has positioned itself to play an important role in Brazil’s energy transition and infrastructure development.
Fitch Ratings is optimistic about Companhia Energética de Minas Gerais – CEMIG (NYSE:CIG). This optimism stems from a strong and diversified asset base, with positive operating performance and healthy operational cash generation in the Brazilian power sector. These factors, together with operations in different segments of the power sector, should help in diluting business and regulatory risks.
1) Safe Bulkers, Inc. (NYSE:SB)
Stock Price as of 4 November: $4.12
3-Year Revenue Growth: 7.3%
3-Year Net Income Growth: 13.8%
Average Upside Potential: ~31%
Number of Hedge Fund Holders: 15
Safe Bulkers, Inc. (NYSE:SB) offers marine drybulk transportation services.
Safe Bulkers, Inc. (NYSE:SB) has plans to expand its fleet with a strong emphasis on environmental upgrades and renewal strategy. Market experts believe that the drybulk outlook is favourable with limited supply and resilient demand. Safe Bulkers, Inc. (NYSE:SB)’s fleet renewal strategy consists of the divestment of older vessels and the addition of second-hand vessels and Phase 3 new builds. The company highlighted that upgrades to the existing fleet, which includes low-friction paints, led to significant fuel consumption savings.
Safe Bulkers, Inc. (NYSE:SB) plans to invest in fleet upgrades using the revenue from scrubbers, and it is open to selling older ships at premium prices because of good condition and recent upgrades. The company has a clear strategy for fleet expansion and renewal and an emphasis on sustainability and operational efficiency. With a favorable outlook for the broader drybulk market, Safe Bulkers, Inc. (NYSE:SB) is well-positioned to capitalize on market opportunities.
The company stated that critical developments of Q2 2024 include the stronger market as compared to the prior year, implementation of its new integrated management system in accordance with DryBMS standards, and the order of 2 additional Phase 3 new builds consistent with its fleet renewal strategy. Safe Bulkers, Inc. (NYSE:SB) has been gradually renewing its fleet with newbuilds which are designed to address the most recent International Maritime Organization (IMO) regulations associated with the reduction of greenhouse gas emissions and nitrogen oxide emissions, and selectively selling older vessels.
While we acknowledge the potential of SB as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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