In this article, we will look at the 7 Cheapest Penny Stocks to Buy Now.
What Does the Jobs Report Mean for the Stock Market
The Federal Reserve rate cut continues to be a hot topic for analysts especially with the new development that came in on October 4th with the Bureau of Labor Statistics releasing the job market report. One of the reasons why the Fed cut rates by 50 basis points was attributed to a weak labor market. It seems that the rate cut has worked but it also means that there might not be any urgency for the Fed to cut rates by another 50 basis points.
On October 4th Reuters reported the job market displayed significant resilience in September, with a notable increase of 254,000 non-farm payrolls and a drop in the unemployment rate to 4.1%. The United States Job gains increased the most in September when compared to the past six months. Moreover, on top of a higher than expected increase in non-farm jobs, wages also increased at a solid pace last month.
Fed Chairman Jerome Powell had already pointed out that the urgency to cut interest rates is not what the market demands at the moment. He mentioned that the committee does not feel the hurry to cut rates quickly.
These recent developments have paved the way for smooth 25 basis point cuts and also brightened the path for a soft landing scenario. In one of our recent articles on 8 Stocks Under $20 To Invest In Now, we discussed the soft landing scenario in detail and what it will mean for the stock market. Here’s an excerpt from the article:
“Larry Adam, chief investment officer at Raymond James, says that the current market is exactly what a soft landing looks like. Adam recently appeared in an interview on CNBC to talk about how the lower interest rates will benefit the small caps in particular the Russell 2000. He believes that the bull market will continue while the economy inches towards a soft landing.
When it comes to small-cap stocks they get around 56% of their financing from the short end of the curve. The short end of the curve refers to the short-term interest rate on the yield curve, which typically represents the yields on bonds with shorter maturities, such as 2-year or 5-year Treasury notes. Whereas the large-cap companies get only 26% financing from these short ends of the curve. Therefore, Adam believes that as the Fed continues to lower interest rates it will help small caps meet financing needs.
He further pointed out that it is expected that the Fed will cut twice this year and another four times the next year. Another reason why he likes small caps is because the economy is going towards a soft landing. Adam emphasized that we have already seen that the rate cuts helped small caps outperform the large caps. Historically speaking whenever the economy has a soft landing it typically helps the small caps greater than the rest of the market.”
To talk about how the market will look like after this report, Jeremy Siegel, Wharton School professor of finance joined CNBC. He pointed out an interesting fact from the jobs report. Siegel mentioned that although 550,000 new jobs were added in the third quarter, hours worked were virtually flat.
Siegel expects third-quarter GDP to be around 2.5% to 3%. Moreover, the good news for the stocks is that the current job market figures are not inflationary but rather pointing toward productivity. Professor Siegel emphasized that he never thought the second cut would be 50 basis points and vouched for a series of 25 basis points cuts each quarter. This all points towards the soft landing scenario becoming more likely.
Is There More Room for Small Caps to Rally?
Now that we know that the economy is moving towards a soft landing rather than a recession, let’s see how the small caps are expected to perform under current circumstances. To talk about the expected performance of small caps in a slowing economy, Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management recently joined CNBC for an inverview. Prial thinks that this is the beginning of a multi-year bull cycle for small cap stocks. There are few basic underlying factors behind this claim including small caps being significantly under owned, in fact they are at record lows as a percentage of the total equity market. Moreover, the valuations of small caps are incredibly attractive and well below their large cap counterparts in the S&P 500.
Prial thinks what we really needed to turn the situation around was the Federal Reserve interest rate cuts and the confidence that the economy is moving towards a soft landing. Another significant factor that was needed is the relative earnings growth for small cap stocks. Prial quoted that the earnings growth for these stocks are expanding and expects that by the end of the year small caps will be growing faster than the large caps.
If we look at the S&P 500 EPS growth rate estimates, the market is expected to grow more than 13% year-over-year during the fourth quarter and more than 15% next year. As Nancy Prial mentioned that small caps are expected to outperform the large caps in growth, she further clarified that the overall indices might not be able to perform above 15%. However, to capitalize on the earnings growth trend, investors have to be good stock pickers as she believes there are going to be a lot of small cap stocks that will post more than 15% to 20% growth next year. Within the small cap category, Prial likes the energy sector as she thinks it will be a main player in the data center and AI industry for the years to come.
With that, let’s look at the 7 cheapest penny stocks to buy now.
Our Methodology
To compile the list of 7 cheapest penny stocks to buy now we used the Finviz stock screener. Using the screener we got a consolidated list of stocks trading under $5, with a forward price-to-earnings ratio under 24.35 (the market’s P/E ratio as per Wall Street Journal), and with earnings expected to grow this year. Once we had an aggregated list of stocks that fit our criteria we then ranked them based on the number of hedge fund holders in Q2 2024, sourced from Insider Monkey’s database. The list is ranked in ascending order of the number of hedge funds. Please note that the share prices mentioned in the article were recorded on October 7, 2024.
Why do we care about what hedge funds do? 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).
7 Cheapest Penny Stocks to Buy Now
7. Definitive Healthcare Corp. (NASDAQ:DH)
Share Price: $4.34
Forward P/E Ratio: 13.33
Earnings Growth This Year: 6.70%
Number of Hedge Fund Holders: 15
Definitive Healthcare Corp. (NASDAQ:DH) is a healthcare company, specializing in healthcare commercial intelligence. In simple terms, it collects and analyzes data for healthcare providers to help them make better business decisions. Their software platform allows healthcare businesses to shape raw data into insightful information using artificial intelligence and machine learning algorithms.
The company recently announced the expansion of its Population Intelligence platform for a broader set of industries within the healthcare segment. The platform will now be able to support advertising, marketing, telehealth, and staffing industries. It uses data from more than 250 million unique consumers aged above 18 years spanning over 300 clinical propensity.
While it is true that Definitive Healthcare Corp. (NASDAQ:DH) has been facing challenges in getting significant new customer acquisitions, the important point to note here is that this is an industry-wide issue faced by all health technology companies. Moreover, if we look at the second quarter earnings call results, we see that its Enterprise customers have grown substantially during the year. The Enterprise customers grew 32% year-over-year.
Moreover, the company’s balance sheet looks good. The top line grew 5% year-over-year to reach $63.7 million. At the same time, the adjusted gross profits were up 1% to $53.1 million. Definitive Healthcare Corp. (NASDAQ:DH) also enjoys significant revenue from its subscription base which improved 5% during the same time.
Lastly, management’s ability to generate cash flow from operations during tough times is also lucrative. The company was able to generate $14 million in cash flow, representing a 17% increase year-over-year.
Conestoga Capital Advisors stated the following regarding Definitive Healthcare Corp. (NASDAQ:DH) in its Q2 2024 investor letter:
“Definitive Healthcare Corp. (NASDAQ:DH): Based in Framingham, MA, DH is a leading provider of healthcare commercial intelligence software. While the end market has been extremely challenging for all participants over the past two years, DH has also executed poorly. In the most recent quarter, strategic changes to the sales force caused significant disruption to new customer acquisition and led to a full-year guidance downgrade just ten weeks after initiating guidance. Combined with instability at the management level, this deterioration in fundamentals constitutes a thesis change.”
6. OppFi Inc. (NYSE:OPFI)
Share Price: $4.47
Forward P/E Ratio: 6.01
Earnings Growth This Year: 45.10%
Number of Hedge Fund Holders: 15
OppFi Inc. (NYSE:OPFI) is a financial technology company that enables Americans to access credit from commercial banks. It allows people to access loans and credit products through its platform, who otherwise are not eligible for traditional loans. The company offers three main programs including OppLoans, where eligible applicants can apply for loans online through a mobile-friendly platform, the TurnUp Program helps users compare various credit products in the market, lastly, the SalaryTrap which allows borrowers to repay directly from their paychecks.
When it comes to the investment case for OppFi Inc. (NYSE:OPFI) two things stand out. First is its history of profitability, the company has been generating positive net income for the past 9 years. Second, the point of attraction is its addressable market which accounts for more than 60 million Americans with no bank accounts or access to traditional banking services.
Talking about profitability, OppFi Inc. (NYSE:OPFI) posted a record second quarter during the current year. Its net income increased 53.1% year-over-year to reach $27.7 million, indicating the record second-quarter income the company has ever generated. Its adjusted earnings per share also increased 53.3% during the same time. Both net income and EPS bested management’s expectations, resulting in a raised full-year guidance by more than 20%.
OppFi Inc. (NYSE:OPFI) is trading at a discounted valuation. It is trading at only 6 times its forward earnings with analysts expecting its earnings to grow by 45% during the year, thereby making OPFI one of the cheapest penny stocks to buy now.
5. Baytex Energy Corp. (NYSE:BTE)
Share Price: $3.31
Forward P/E Ratio: 9.38
Earnings Growth This Year: 216.70%
Number of Hedge Fund Holders: 17
Baytex Energy Corp. (NYSE:BTE) is a Canadian energy company that operates in both the United States and Canada. It produces light and heavy crude oil, around 84% of its production comes from these products. The other 16% comes from natural gas and natural gas liquids. It is one of the cheapest penny stocks to buy now.
Last year, the company acquired Ranger Oil allowing it access to Eagle Ford in Texas, which now produces more than 60% of the company’s products. This site is said to be the differentiating factor for the company and it is expected that the production from Eagle Ford will grow by 1% to 4% each year for the next 3 years.
To acquire Ranger Oil, Baytex Energy Corp. (NYSE:BTE) had to take additional debt of around $1.9 billion in 2023. However, it does not seem to be a big challenge for the company. Management expects to generate around $388 million in free cash flow during the fiscal 2024 and plans to utilize half of it for debt reduction.
Moreover, it also continues to deliver robust growth. During the second quarter of 2024, the company reported increasing its production per share by 23% year-over-year and reached 154,000 barrels of oil per day. Therefore if you are a value investor looking for cheap oil stocks you might want to look at Baytex Energy Corp. (NYSE:BTE).
4. Fortuna Mining Corp. (NYSE:FSM)
Share Price: $4.88
Forward P/E Ratio: 9.91
Earnings Growth This Year: 113.60%
Number of Hedge Fund Holders: 17
Fortuna Mining Corp. (NYSE:FSM) is a Canadian Mining company that focuses on precious metals including gold, silver, lead, and zinc. The company has operations in Latin America and West Africa.
The company is on track to meet its annual guidance of 457 to 479 kilo-ounce gold production and an All-In Sustaining Cost (AISC) of $1,485 to $1,640/oz Gold. During the second quarter of 2024 alone, Fortuna Mining Corp. (NYSE:FSM) produced 92.7 kilo ounces of gold which was up from 64.3 kilo ounces from the comparable quarter last year. The consolidated AISC was also close to its guidance at $1,656/oz of gold indicating a significant improvement from the previous year.
Production is merely the first half for any mining company, the second half comprises selling the produced metals. Fortuna Mining Corp. (NYSE:FSM) has done well in the selling department as well. Its net sales of $260 million were up nearly 64% from the same quarter in 2023, indicating an overall robust business for the company.
Strong production topped with an improved AISC resulted in strong operating income for the mining company. The operating income came in at $55.4 million more than a 619% increase year-over-year.
These robust financial highlights become more attractive with its cheap valuation and current share price. The stock is trading at only 9.91 times its forward earnings. Moreover, its earnings are expected to grow by 114% during the year making it one of the cheapest penny stocks to buy now.
3. Nokia Oyj (NYSE:NOK)
Share Price: $4.35
Forward P/E Ratio: 11.53
Earnings Growth This Year: 19.40%
Number of Hedge Fund Holders: 18
Nokia Oyj (NYSE:NOK) is a technology company that focuses on telecommunication and networking technology. The company used to be a market leader in the hardware market, however now it is focused on specializing in the network industry. It has made significant progress in wireless and wired communications and is also focusing on the latest IoT technologies.
To shift its focus on networking management announced divestment of its ASN business and is also intending to buy Infinera. Due to tough market conditions, the net sales for Nokia Oyj (NYSE:NOK) declined by 18% in Q2 2024. To address the situation management has initiated a cost-saving program and plans on saving $893.64 million to $1340.46 million during the next 2 years.
The company has recently started to show improvement in terms of order intake. Its Network Infrastructure segment posted an improvement in order intake for the third consecutive quarter. Moreover, it also generated around $450 million in free cash flow during the quarter, giving confidence to management for keeping its guidance for the full year intact.
2. New Gold Inc. (NYSE:NGD)
Share Price: $2.80
Forward P/E Ratio: 16.22
Earnings Growth This Year: 142.90%
Number of Hedge Fund Holders: 21
New Gold Inc. (NYSE:NGD) is another Canadian mining company that focuses on exploring and mining precious metals including gold, silver, and copper. The company operates by acquiring new mining properties and developing them to make them mineable to maximize resource extraction.
Two of its core assets include Rainy River Mine and New Afton Mine. The Rainy River Mine is located in Northwestern Ontario with projected mine life until at least 2031. On the other hand, its New Afton Mine is situated in Kamloops, British Columbia, and produces large quantities of copper and gold.
New Gold Inc. (NYSE:NGD) gold production for the second quarter was significantly lower during the second quarter of 2024. This might make you shy away from investing in the company. But the point to notice here is that this decrease in production was all in line with management’s expectations. The company is undergoing a waste stripping process and is focusing on building a strong all-in-sustaining cost to enhance its mining discipline.
If we look at the overall production during the second quarter, gold consolidated production was lower as mentioned earlier however, it increased from 16,645 ounces in Q2 2023 to 18,300 ounces during the recent quarter. What’s more impressive is its ability to significantly decrease the all-in-sustaining cost per gold ounce sold. During the second quarter, the cost stood at $1,381, representing a significant decrease from the year before when the cost amounted to $1,582.
These financial achievements become more interesting with their cheap valuation. The stock is trading at around 16 times its forward earnings with analysts expecting its earnings growth to be positive during the year, making it one of the cheapest penny stocks to buy now.
1. Advantage Solutions Inc. (NASDAQ:ADV)
Share Price: $3.06
Forward P/E Ratio: 7.93
Earnings Growth This Year: 147.40%
Number of Hedge Fund Holders: 23
Advantage Solutions Inc. (NASDAQ:ADV) is a marketing company that helps brands and retailers sell their products more effectively. It provides three main services including outsourced sales, where it manages sales for other companies, marketing solutions, which provide in-store and online marketing services, and lastly, experimental services where the company organizes events to allow customers to try products before buying.
The description above seems very basic for a marketing company. However, there is more, what sets Advantage Solutions Inc. (NASDAQ:ADV) apart is its data and technology solutions, it uses digital platforms such as Advantage CSP, which allows brands to manage their digital content and experiences effectively.
The company just completed its business simplification process, which was aimed at simplifying its portfolio to align better with business needs. As a result of the process, it was able to generate around $280 million from divestiture proceeds, which includes $130 million from the Jun Group sale. Moreover, the company is halfway through its unified organization transformation, which will have interconnected capabilities to serve brands better.
The overall revenue for the second quarter was down year-over-year due to the ongoing strategic measures and softness in branded products. Revenue for the quarter came in at $873 million 9% decrease year-over-year. On the bright side, its Experimental Services business proved to be a successful venture during the quarter its revenue improved by 12% year-over-year.
Management believes that the second half of the year is naturally favored by seasonality factors and the recent strategic measures are expected to position the company to benefit more from seasonality. Therefore if you are looking for cheap penny stocks to buy now, you might want to consider Advantage Solutions Inc. (NASDAQ:ADV).
Curreen Capital made the following comment about Advantage Solutions Inc. (NASDAQ:ADV) in its Q3 2023 investor letter:
“Advantage Solutions Inc. (NASDAQ:ADV) works with brands and stores to sell products through stores. The company is one of the largest managers of in-store sampling programs in the U.S. (for example, would you like to try this new brand of: cheese/chips/dip/etc.) Advantage Solutions was a SPAC-merger completed in October 2020. Advantage Solutions is a capital light business that earns high returns on capital. It has a meaningful debt load, though the debt lacks onerous covenants and does not come due for several years. Advantage Solutions uses its free cash flow to repay debt and acquire smaller competitors. The company currently trades at an attractive upside-to-downside ratio.”
While we acknowledge the potential of Advantage Solutions Inc. (NASDAQ:ADV) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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