In this article, we’re going to talk about the 8 most profitable penny stocks to invest in.
Potential in Small-Caps
The misallocation of capital to less productive sectors can lead to inflationary pressures and hinder economic growth. A lot of experts now suggest that investors should be cautious and focus on small and mid-cap stocks (SMid caps) that may thrive in a low-interest rate environment. The overall strategy involves updating price targets for companies sensitive to interest rates that also show strong revenue and earnings growth potential in a soft landing scenario. As September was concluding, Curtis Nagel, senior US SMid cap internet analyst at BofA Securities, appeared on CNBC to discuss the potential opportunities in small-cap stocks as the Fed made its cut decision. Here’s a short excerpt from the article 7 Best Small Company Stocks To Invest In that discusses this in more detail:
“Curtis Nagel shared his insights on the performance and potential opportunities in small and mid-cap stocks following the Fed’s rate cut. While the Russell 2000 index has underperformed the major averages since the rate cut, he believes this could spell big opportunities for SMID-cap stocks across various sectors, including home furnishings and subscription services.”
With the upward revision of price targets for companies with high sensitivity to interest rates, SMid-cap stocks are seen as a promising area for investors. Yet, some experts tend to disagree based on the recent small-cap performance.
Tom Lee, Fundstrat co-founder, joined ‘Power Lunch’ on CNBC on October 7 to discuss the staying power of the bull market, touching on small caps, and his overall market outlook. As most market analysts highlight the resilience of the bull market amidst looming threats, particularly with the US elections just 4 weeks away, Tom Lee expressed optimism about the S&P 500, suggesting it could close at 5,700 or even higher by the year-end. He attributed this potential growth to a dovish Fed beginning to cut rates and the stimulus measures being implemented in China, which he believes will positively impact the market. With significant cash still on the sidelines, Lee sees a favorable environment for stocks over the next 3 to 12 months.
Despite Lee’s bullish outlook, he acknowledged that small-cap stocks have exhibited weakness since the Fed began raising rates. He noted that while small caps are within a few percentage points of their all-time highs, they have not performed as well as expected. The market’s current risk appetite is mixed, and with the upcoming election and elevated oil prices contributing to uncertainty, investors may be hesitant to take on new risks.
When discussing oil prices, Lee pointed out that any disruption in Iranian oil supplies, accounting for only about 3% of global output, could have psychological effects on the market. While such an interruption might not significantly impact economic terms, it could lead to increased volatility and consumer pain if oil prices surge. He emphasized that markets generally dislike uncertainty, and even temporary spikes in oil prices could create discomfort for consumers.
While there are challenges ahead, especially with the election approaching, the underlying economic conditions and potential policy shifts could provide opportunities for investors. The interplay between monetary policy, geopolitical factors, and market sentiment will be crucial in shaping market dynamics in the coming months. The market needs to be carefully watched before investor decisions can be made and to help you streamline your research process, we’re here with a list of the 8 most profitable penny stocks to invest in.
Methodology
We sifted through Finviz to compile an initial list of the top penny stocks, with a share price under $5. From that list, we narrowed our choices to 15 companies with positive TTM net income and 5-year net income compound annual growth rate. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, 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).
8 Most Profitable Penny Stocks To Invest In
8. Paysign Inc. (NASDAQ:PAYS)
TTM Net Income: $7.7 million
5-Year Net Income CAGR: 13.78%
Share Price as of October 9: $3.67
Number of Hedge Fund Holders: 6
Paysign Inc. (NASDAQ:PAYS) is a global payment services company that develops and manages payment solutions, prepaid card programs, and customized payment services. It primarily serves small and medium-sized businesses, providing them with tools to manage their payments efficiently, currently managing programs for 6 of the 20 largest pharmaceutical companies in the world.
The company’s patient affordability business saw a 267% revenue increase in Q2 2024, as compared to the year-ago period, making up 59% of the total revenue growth. Additionally, the number of claims processed increased by an even higher 365%. The total revenue was $14.33 million, up 29.80% year-over-year. The plasma donor compensation business was up 13%.
This quarter, it added 8 new patient affordability programs, bringing the total to 61. It also added 8 new plasma centers, reaching a total of 477 centers, with plans to add another 5-10 centers by the end of 2024. AstraZeneca, a key client for Paysign Inc. (NASDAQ:PAYS), has expanded its program portfolio from 4 to 12 programs, covering a diverse range of therapeutic classes and including both new launch and transition initiatives.
The company showcases strong financial performance, driven primarily by the exceptional growth of its patient affordability business. With a robust pipeline and a focus on innovation, Paysign Inc. (NASDAQ:PAYS) is well-positioned to continue its upward trajectory and deliver significant value to shareholders.
7. Enel Chile (NYSE:ENIC)
TTM Net Income: $818.8 million
5-Year Net Income CAGR: 21.73%
Share Price as of October 9: $2.62
Number of Hedge Fund Holders: 7
Enel Chile (NYSE:ENIC) is a global power company and one of the principal integrated operators in the worldwide energy and gas sectors. With a presence in 30+ countries across 4 continents, It’s perfectly placed to supply open power to ~61 million people, with a net installed capacity of over 90 GW. It is also involved in renewable energy projects, contributing towards a sustainable energy future.
Hydrological conditions improved in 2023, leading to higher hydro production in Q1 2024. Rainfall in Q2 2024 boosted production by 72% year-over-year. It accumulated 2.1 TWh of hydro generation year-to-date, surpassing last year’s levels. Reservoir water levels are sufficient to meet demand until year-end.
Net generation grew 11% year-over-year to 6.1 TWh in the second quarter of 2024 due to higher hydro and wind. Energy sales reached 17 TWh in June, up 10% from last year, with increased sales to regulated customers and frequent clients. The company fulfilled client commitments with more renewable generation, reducing spot market purchases. Physical energy sales grew 11% to 8.5 TWh, driven by higher sales to regulated customers. It also increased third-party purchases by 1.5 TWh to diversify sourcing.
Revenue in Q2 2o24 was $1.32 billion. The company’s renewable and BESS capacity represented 77% of its generation portfolio, leading to higher production and lower CO2 emissions. The number of clients in distributed energy grew by 2% and 3% in the concession area. Regulatory advancements, including the approval of the new stabilization mechanism and the issuance of the P&P decree, further supported the company’s performance.
The strong performance in the first half of 2024 was driven by increased renewable capacity, improved operational efficiency, and strong customer growth. These factors position Enel Chile (NYSE:ENIC) for continued growth.
6. Ultrapar Participacoes (NYSE:UGP)
TTM Net Income: $506.8 million
5-Year Net Income CAGR: 19.20%
Share Price as of October 9: $3.78
Number of Hedge Fund Holders: 10
Ultrapar Participacoes (NYSE:UGP) is a Brazilian conglomerate operating in the industry segments of energy and logistics infrastructure through its subsidiaries Ipiranga, Ultragaz, and Ultracargo. It operates in various sectors, including fuel distribution, lubricants, pharmaceutical products, and transportation logistics.
The volume of LPG sold in the second quarter was 1% lower year-over-year due to the 2% reduction in the bottled segment, reflecting the continued competitive environment and a milder winter compared to the previous year.
The company’s average stock capacity increased by 12% to 1,067,000 cubic meters year-over-year, primarily due to increased capacity at Opla, Vila do Conde and Rondonopolis terminals. Cubic meters sold grew 19% year-over-year, driven by the start of operations at Opla and Rondonópolis, higher fuel handling at Vila do Conde, and lower spot fuel handling at Santos and Itaqui. Net revenues increased by 2% due to higher cubic meters sold, despite lower spot sales.
Ipiranga’s volumes sold grew 4% year-over-year, with diesel and auto cycle sales increasing by 5% and 3%, respectively. The number of service stations decreased by 5 to 5,876, reflecting stricter contract compliance. Same-store sales for AmPm stores grew 7%.
These segments came together to record a total revenue of $5.80 billion in Q2 2024. However, this number reflected a 3.82% decline from the second quarter in 2023. Despite the decline, Ultrapar Participacoes (NYSE:UGP) had a resilient financial performance, driven by robust growth in all 3 of its core businesses. Its EBITDA increased significantly, leading to higher net income and a strong cash position. The focus on operational efficiency and strategic investments has positioned it well for continued success in the Brazilian market.
Here is what Third Avenue Management Value Fund has to say about Ultrapar Participações S.A. (NYSE:UGP) in its Q1 2022 investor letter:
“Ultrapar is a Brazilian fuel distribution and storage business. Operating under the Ipiranga brand name, Ultrapar is one of three companies with dominant fuel distribution networks in Brazil. With more than 7,000 service stations, Ipiranga holds an approximate 19% market share in Brazilian vehicle fuel distribution and also operates a related convenience store business under the AmPm brand. Ultrapar also operates one of Brazil’s largest Liquefied Petroleum Gas (“LPG”) distribution businesses as well as one of Brazil’s largest bulk liquids storage terminal networks. The Brazilian equity market has, in recent years been a relatively poor performer, particularly as measured in U.S. dollars. Ultrapar is one example of a relatively high quality Brazilian business that is currently available at valuation levels we haven’t seen in some time. Additionally, like many businesses in Brazil, the fuel distribution business has a few country-specific complexities. In the main, we would say that the overall direction of policy in Brazil has made operating the business more straightforward and the separation of several businesses in the energy storage and distribution arena from state-controlled Petrobras is gradually allowing the industry to operate in a more traditional arms-length manner. Further, as it relates to Ultrapar specifically, in recent years, it is generally accepted that Ipiranga has been the least well operated of the big three fuel distributors. This is most glaringly evidenced by routinely inferior fuel distribution margins. Ultrapar also spent years making ill-advised acquisitions in an attempt to diversify, a process which is currently being put into reverse. The disposition of several large but noncore businesses has led to a substantial cash inflow recently, putting Ultrapar on excellent footing to make operational improvements and, potentially, to make strategic additions to its business. This strategy will be executed by a new CEO, to whom Ultrapar’s controlling family has made a considerable financial commitment. We have high-regard for the new CEO, having familiarity with him from his previous career at Cosan S.A., another one of Brazil’s big three fuel distributors. In summary, we think that there is a lot of room for operational improvement as well as general valuation upside at Ultrapar.”
5. Mizuho Financial Group Inc. (NYSE:MFG)
TTM Net Income: $4.5 billion
5-Year Net Income CAGR: 49.14%
Share Price as of October 9: $4.17
Number of Hedge Fund Holders: 12
Mizuho Financial Group Inc. (NYSE:MFG) is a Japanese financial services company offering various banking and financial products and services. It’s one of the largest financial institutions in Japan, providing retail banking, corporate banking, investment banking, and asset management services. Key subsidiaries include Mizuho Bank, Mizuho Trust & Banking, and Mizuho Securities.
It reported an 18% increase in profit in FQ1 2025, driven by rising interest rates. The lender’s loan and deposit rate margin improved to 0.85%, up from 0.76% a year earlier. With the Bank of Japan lifting rates, the company can benefit from expanding profit margins. Overall revenue improved by 15.22% year-over-year, recording $4.97 billion in the first quarter of fiscal 2025, earning $0.15 per share. Return on equity improved to 8% due to favorable market conditions, higher interest rates, and strategic capital reallocation. The company aims to achieve an ROE of over 8% by next year, indicating confidence in sustained profitability and growth.
Recently on October 1, it acquired a minority stake in Golub Capital, a US private credit firm. This move aims to capitalize on the growing private credit markets in the US. This partnership marks Mizuho Financial Group Inc.’s (NYSE:MFG) first stake in a US private credit asset manager, joining other banks that have partnered with private credit firms to tap into the $1.7 trillion industry.
Mizuho Financial Group Inc.’s (NYSE:MFG) robust asset base and commitment to shareholder returns, position the company for continued growth and attractive returns for investors. The company’s strong financial fundamentals and positive outlook make it an attractive investment for those seeking exposure to Japan’s evolving economic landscape.
4. Companhia Energetica Minas Gerais (NYSE:CIG)
TTM Net Income: $1.1 billion
5-Year Net Income CAGR: 7.47%
Share Price as of October 9: $1.99
Number of Hedge Fund Holders: 13
Companhia Energetica Minas Gerais (NYSE:CIG) is one of the main electricity concessionaires in Brazil. It operates in various areas of the electricity sector, including power generation, transmission, distribution, gas, and other businesses, generating electricity from sources like hydroelectric, thermal, and wind power plants. It transmits and distributes electricity to residential, commercial, and industrial customers, and participates in natural gas distribution and energy efficiency through its subsidiary, Efficientia.
Gasmig, a subsidiary, has started the Centro-Oeste Project, constructing 300 kilometers of pipeline with a budget of ~$140 million. For 2024, the company plans to invest over $1 billion, with over $2 billion already allocated.
The company’s revenue declined 3.84% year-over-year, recording $1.73 billion. Recurring EBITDA marked a 2% increase. Its strong operating cash flow in the first half of 2024 supports its financial stability and ability to manage debt, fund investments, and distribute dividends. Renewable energy is a key growth area. The company’s investments in renewable energy in the first half of 2024 were up 43.1% from the previous year. The launch of photovoltaic solar plants in June 2024 marks a significant expansion into renewable sources.
Companhia Energetica Minas Gerais (NYSE:CIG) is a promising investment with strong momentum, financial performance, and growth prospects in the energy sector. Its focus on renewable energy and infrastructure projects positions it well for continued success.
3. Safe Bulkers Inc. (NYSE:SB)
TTM Net Income: $95.5 million
5-Year Net Income CAGR: 30.91%
Share Price as of October 9: $4.95
Number of Hedge Fund Holders: 15
Safe Bulkers Inc. (NYSE:SB) provides marine dry-bulk transportation services, owning and operating dry-bulk vessels for transporting bulk cargoes primarily coal, grain, and iron ore. It has a fleet of 47 dry-bulk vessels having an aggregate carrying capacity of 4,719,600 deadweight tons. Its business is influenced by factors like global trade, demand for commodities, and shipping rates, so its financial performance can fluctuate depending on these market conditions.
The market focuses on decarbonization and energy efficiency, with strong iron ore demand. Coal demand is stable, and grain bulk levels are healthy. Global GDP growth is forecast at 3.2%, and BIMCO forecasts 3% growth in dry market demand. The dry bulk market remains strong despite falling steel and iron ore prices. Trade averages $22,000 per day, and global coal investment is set to grow by 2%. India’s growth forecast is raised to 7.3%.
Safe Bulkers Inc. (NYSE:SB) operated in a stronger chartered market environment in Q2 2024, with increased revenues from higher charter hires. However, earnings from stupefied vessels and higher interest expenses impacted overall profitability. Despite this, the company improved total revenue by 11.77% year-over-year.
Key financial highlights include an adjusted EBITDA of $41.8 million and adjusted earnings per share of $0.17. Operationally, the company operated 45.43 vessels on average, earning a TCE of $18,615. The company’s net income for the second quarter of 2024 was $27.6 million. The company’s strong financial performance, coupled with a healthy cash position and a focus on operational efficiency, positions it well for continued growth and success in the chartered market.
2. Gerdau (NYSE:GGB)
TTM Net Income: $905.6 million
5-Year Net Income CAGR: 20.57%
Share Price as of October 9: $3.46
Number of Hedge Fund Holders: 15
Gerdau (NYSE:GGB) is the largest producer of long steel in the Americas, producing a range of steel products, including long steel products like rebar and wire rod, and flat steel products like hot-rolled and cold-rolled coils. It serves various industries, including construction, automotive, and manufacturing. Its financial performance is influenced by factors such as global steel demand, commodity prices, and economic conditions.
In the second quarter of 2024, the company’s earnings per share value was at $0.07. The revenue generated in this period was $2.94 billion, recording a decline of 21.23%. This decline was followed by missed Street expectations for the quarterly revenue. This was primarily due to an oversupply in the steel market, increased competition from imports, and a decrease in crude steel production and shipments. Gerdau (NYSE:GGB) experienced a 5.3% drop in production and a 7.5% decline in shipments year-over-year, leading to lower sales prices.
The US automotive market is recovering, reaching 16 million units in 2024. Brazil’s special steel market is optimistic due to a 32.1% growth in heavy-duty production. However, uncertainties and imported steel remain challenges. The company improved its steel production capabilities. Argentina’s steel market is recovering slowly from a low point due to inflation. Uruguay’s steel consumption remains strong. Peru’s GDP grew 5.5%, driven by construction and other sectors. Brazil’s long and flat steel market faces challenges from imported steel and production disruptions. However, positive indicators for the construction industry are expected.
Despite short-term challenges, the company’s prospects remain positive, driven by industry recovery, increased production efficiency, and favorable economic conditions in key markets. Its strategic focus on innovation and market diversification positions it well for long-term growth.
1. OraSure Technologies Inc. (NASDAQ:OSUR)
TTM Net Income: $27 million
5-Year Net Income CAGR: 6.71%
Share Price as of October 9: $4.09
Number of Hedge Fund Holders: 29
OraSure Technologies Inc. (NASDAQ:OSUR) is a medical technology company that develops and manufactures oral fluid-based diagnostic tests. These tests are used for various purposes, including HIV screening, sexually transmitted infection (STI) testing, and other medical diagnostics.
It is experiencing growth in Syphilis Health Check and multiproduct sales for HIV, HCV, and Syphilis tests. The company achieved a WHO PQ milestone and launched new FDA-cleared packaging for OraQuick HIV self-test. It expanded Syphilis Health Check and ORAcollect Dx partnerships. It continues investing in innovation and operational improvements to drive sustainable growth. The sample management solutions are expanding into emerging markets, such as liquid biopsy and animal health.
OraSure Technologies Inc.’s (NASDAQ:OSUR) Q2 2024 revenue was $54.34 million, including $18.9 million from COVID-19 products. Core revenue declined 7% year-over-year, impacted by the exit of Diversigen Molecular Sequencing Services. The overall revenue declined 36.41% this quarter.
It’s making progress on cost reduction initiatives, including exiting Diversigen, closing a Belgian site, and internalizing production. These actions are expected to save over $15 million annually and help achieve breakeven in operating cash flow. The company has a strong balance sheet with $267 million in cash. Q3 revenue is expected to be $37-41 million, with a core revenue of $36-39 million.
The company’s strategic transformation is progressing well. It’s focused on improving operational efficiency, streamlining its portfolio, and expanding market access, and is therefore well-positioned for long-term success.
While we acknowledge the growth potential of OraSure Technologies Inc. (NASDAQ:OSUR), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than OSUR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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