We recently compiled a list of the 10 Best Canadian Penny Stocks to Buy Now. In this article, we are going to take a look at where New Gold Inc. (NYSE:NGD) stands against the other Canadian penny stocks.
As we navigate the complexities of 2024, Canada’s economic landscape presents a unique blend of challenges and opportunities. The global economy is grappling with the aftershocks of generationally high inflation, which has led to the most rapid monetary tightening we’ve seen in decades. While the U.S. economy has shown surprising resilience, achieving a delicate balance of strong growth and moderating inflation, Canada faces a different set of circumstances that investors should closely monitor. Canada’s economy, while robust in many respects, is particularly sensitive to interest rates. High household debt-to-income ratios and relatively shorter mortgage terms mean that Canadian consumers and businesses feel the impact of rising interest rates more acutely than their counterparts in the U.S. Despite this, the latter part of 2023 brought stronger-than-expected economic momentum, bolstered by record immigration and the positive spillover effects from a resilient U.S. economy. As a result, fears of a recession in Canada this year have largely dissipated.
However, this doesn’t mean the Canadian economy is out of the woods. Growth is expected to remain below trend in 2024, with the Bank of Canada projecting a modest GDP growth rate of 1.25% to 1.5%. The slowdown in growth is partly due to the country’s unique economic vulnerabilities. Productivity growth, for instance, has been on a concerning decline, with Canada’s senior deputy governor even describing the situation as an “emergency.” This decline in productivity is largely driven by a lack of business investment in critical areas such as equipment, machinery, and intellectual property, exacerbated by limited competition in key industries like telecommunications and banking. On the brighter side, this slower growth is expected to contribute to a further moderation in inflation pressures. Headline inflation has been gradually decreasing, and core inflation—excluding volatile food and energy prices—is also making its way toward the Bank of Canada’s target range. This gives the Bank of Canada some room to maneuver, with expectations that it will reduce interest rates by 50-75 basis points later this year.
Despite strong economic growth, including an exceptional surge in job creation in April 2024, employment growth of 2.0% over the past year has lagged behind the 3.4% increase in population. This imbalance has driven the unemployment rate up by nearly a full percentage point to 6.2%, and it is expected to remain high through the rest of this year before gradually declining in 2025. Wage growth, which averaged 5.3% in 2023, has slowed significantly to just 3.9% (annualized) in the first quarter of 2024. With inflationary pressures easing, this slower pace of wage growth is likely to persist through 2024 and into next year. The Bank of Canada’s decision to cut its policy interest rate was welcomed, but Canadian households remain the most indebted in the G7. The interest rate hikes since 2022 have strained household finances, leading to a decline in real consumer spending per capita in five of the last seven quarters as more income is directed toward servicing mortgage and loan interest payments.
The impact on the housing market has been even more pronounced. Real residential investment per capita fell by 22.8% in the first quarter of 2024 compared to the same period two years earlier. Looking ahead, consumer spending and residential investment are expected to recover as lower interest rates help restore demand. However, with consumer confidence low, reluctance to make major purchases, ongoing challenges in housing affordability, and savings rates still above normal, the pace of recovery in the second half of 2024 will likely be restrained.
Deloitte projects that more significant gains in consumption and residential investment will occur next year as confidence improves. Overall, Canada’s economy performed better in the first half of 2024 than anticipated. However, this strength is expected to be offset by slower real GDP growth in the latter half of the year due to weaker household spending. The updated forecast projects real GDP growth of 1.2% for 2024, with an acceleration to 2.6% in 2025. On a per-capita basis, real GDP is expected to decline by 1.6% this year before rebounding to 1.1% growth in 2025.
In this context, the Canadian stock market, particularly the penny stocks segment, offers intriguing opportunities. Penny stocks, often overlooked, can be a gateway to substantial returns, especially in a market like Canada’s, where economic conditions are ripe for selective investment. Whether you’re a seasoned investor or new to the world of penny stocks, the following picks are poised to potentially deliver impressive returns in the current economic climate.
Our Methodology
For this article we first used a stock screener to list down all Canadian stocks trading under $5 as of August 25. We then picked 10 of these stocks with the highest number of hedge fund investors. To gauge hedge fund sentiment we used Insider Monkey’s database of 912 hedge funds. This way, the penny stocks mentioned in this article are the best penny stocks to buy according to elite hedge funds.
At Insider Monkey we are obsessed with 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).
Aerial view of an open mine with large cranes and excavators working on the surface.
New Gold Inc. (NYSE:NGD)
Number of Hedge Fund Holders: 21
New Gold Inc. (NYSE:NGD) holds the number two spot on our list. New Gold Inc. (NYSE:NGD) is a well-established gold mining company with a diversified portfolio that includes the Rainy River, New Afton, and Cerro San Pedro mines. The company, headquartered in Toronto, Canada, has a strong track record of delivering on its operational goals, which is evident from its consistent performance in recent quarters.
In the second quarter of 2024, New Gold Inc. (NYSE:NGD) reported solid production figures, with Rainy River producing approximately 50,300 ounces of gold and New Afton contributing around 18,300 ounces of gold and 13.6 million pounds of copper. The company’s all-in sustaining costs (AISC) were $1,381 per gold ounce on a byproduct basis, and it managed to keep costs under control, with expectations of further reductions in the second half of the year. This focus on cost management, coupled with increased production, has positioned New Gold Inc. (NYSE:NGD) to generate positive free cash flow.
New Gold Inc. (NYSE:NGD) financial health is robust, with Q2 2024 revenue of $218 million, a 10% increase in copper production, and net earnings of $52 million. The company has a healthy liquidity position with $184 million in cash on hand. New Gold Inc. (NYSE:NGD) strategic initiatives, including the expansion of its interest in New Afton to 80.1%, further strengthen its financial position, making it well-prepared to leverage the higher metal price environment.
The company’s exploration efforts, particularly at Rainy River and New Afton, have been promising, with significant progress in drilling and development. This positions New Gold for long-term growth, with the potential for extended mine lives and increased production. With strong fundamentals, a disciplined operational approach, and strategic growth initiatives, New Gold Inc. (NYSE:NGD) is well-positioned to capitalize on future opportunities in the gold and copper markets.
The number of hedge funds in Insider Monkey’s database owning stakes in New Gold Inc. (NYSE:NGD) grew to 21 in Q2 2024, as compared to 17 in the preceding quarter. The consolidated value of these stakes is nearly $169.45 million. Among these hedge funds, Ryan Schedler And Bradley Shisler’s Condire Investors was the company’s leading stakeholder in Q2.
Overall NGD ranks 2nd on our list of the best Canadian penny stocks to buy. While we acknowledge the potential of NGD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NGD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.