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 NovaGold Resources Inc. (NYSE:NG) 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).
An aerial view of a gold mining claim in the Kuskokwim region of southwestern Alaska.
NovaGold Resources Inc. (NYSE:NG)
Number of Hedge Fund Holders: 16
NovaGold Resources Inc. (NYSE:NG) presents a compelling investment opportunity, driven by the promising prospects of its flagship Donlin Gold project in Alaska. Donlin Gold is a Tier 1 asset, boasting an impressive 40 million ounces of gold with a grade exceeding 2 grams per tonne, which is significantly higher than the industry average. This high-grade deposit, coupled with a projected mine life of nearly 30 years, positions Donlin Gold as a stable, long-term operation capable of producing around 1 million ounces annually at low costs. The extensive exploration potential within Donlin’s vast landholdings further enhances its growth prospects, making it a cornerstone project in the gold mining industry.
NovaGold Resources Inc. (NYSE:NG) commitment to advancing Donlin Gold is underscored by the company’s strategic approach to project development. With most federal and state permits secured and ongoing efforts to update the feasibility study, NovaGold Resources Inc. (NYSE:NG) is poised to make significant progress when market conditions align. The company’s partnership with Calista and The Kuskokwim Corporation, private landowners in Alaska, ensures strong local support and aligns with the community’s vision for responsible economic growth. This social license, combined with Alaska’s favorable mining regulations, provides a stable and secure environment for Donlin Gold’s development.
The project’s strategic importance is amplified by the global decline in high-quality gold deposits, making Donlin Gold’s scale, grade, and longevity increasingly valuable. As gold prices remain strong, Donlin Gold’s potential net present value exceeds $25 billion, highlighting the significant upside for investors. Additionally, the project’s ESG commitments, including community engagement and environmental stewardship, further reinforce its attractiveness as a sustainable and responsible investment. NovaGold Resources Inc. (NYSE:NG) experienced management team remains focused on delivering value to shareholders by advancing Donlin Gold through a disciplined and strategic approach, positioning the company for long-term success in the gold market.
In the second quarter of fiscal 2024, NovaGold Resources Inc. (NYSE:NG) reported a net loss of $10.9 million, primarily due to exploration and project development expenses. The company maintains a strong cash position with $76.8 million in cash and term deposits, which it intends to use for ongoing project expenditures. The Donlin Gold project is a 50-50 joint venture with Barrick Gold, and NovaGold continues to work towards securing all the necessary permits for its future development. Despite the challenges, NovaGold remains committed to its long-term strategy of developing a world-class gold asset. In the second quarter of 2024, 16 hedge funds had positions in NovaGold Resources Inc. (NYSE:NG). The combined value of these holdings is around $172.65 million, with John Paulson’s Paulson & Co holding the largest position among these funds.
Overall NG ranks 6th on our list of the best Canadian penny stocks to buy. While we acknowledge the potential of NG 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 NG 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.
