In this article, we discuss 10 best debt-free penny stocks to buy now.
Inflation in the U.S. has dropped to the lowest level since 2021, setting the stage for the Federal Reserve to cut interest rates. With inflation down to 2.5%, close to the recommended 2%, the prospects of the U.S. Federal Reserve conducting more than one interest rate cut heading into year-end is more than guaranteed.
Investors tend to be excessively hopeful regarding the extent and timing of Federal Reserve rate reductions. The markets are fond of reduced rates as they can boost economic growth by reducing the cost of borrowing for U.S. businesses and individuals.
READ ALSO: 10 Undervalued Cyclical Stocks to Buy According to Analysts and 10 Best US Stocks to Buy Under $5.
The prospect of an interest rate cut of more than 50 basis points before year-end makes the case for being bullish in the equity markets. Penny stocks could be an ideal play on the risk-reward front, given that valuations in the overall market have gotten out of hand.
With the S&P 500 up by more than 17% for the year, large-cap stocks are trading at premium valuations after blockbuster gains over the past year. The artificial intelligence frenzy has catalyzed the blockbuster move to the upside. Nevertheless, debt-free penny stocks are still trading at discounted valuations with tremendous upside potential.
While inflation levels have eased significantly over the past year, it does not mean that prices of things have dropped significantly. According to Lisa Sturtevant, chief economist at Bright MLS, consumers are paying more than 20% more for goods and services than before the pandemic. However, the prospects of lower interest rates should be a boon for companies.
Access to cheap capital should be much easier with the benchmark rate coming down. Penny stocks, mostly made up of low market cap companies, should be the biggest beneficiaries as they could access capital to ramp up operations and fund growth.
Nevertheless, concerns are growing on Wall Street that interest rate reduction might come too late, as numerous American consumers are already struggling to cope with the burden of elevated costs and limited capacity to increase their spending. A wave of disappointing economic data, especially in the labor market, sends jitters that the economy might be slowing.
Jamie Dimon has already reiterated that there is a 30% to 40% chance of the economy plunging into recession. According to Dimon, the long-running high interest rate environment put more pressure on the economy in the run-up to pull inflation down to 2%.
With recession fears gathering steam in recent months, a wave of caution has gripped the equity market as investors remain wary of the elevated valuation. Amid these concerns, the Best Debt Free Penny Stocks to Buy Now offer a way out of the debacle as such companies are well poised to benefit from inflation and interest rates dropping.
American companies continue to have dangerously high debt levels on their financial statements. A report from S&P Global Ratings reveals that the number of corporate debt defaults spiked last year and could see a resurgence in 2024, as companies with limited liquidity face the burden of high interest rates.
In 2023, 153 companies could not fulfill their debt payment commitments, a notable jump from 85 in the prior year, indicating an 80% increase. This represents the highest default rate in seven years, excluding the sharp increase during the COVID-19 pandemic in 2020.
While many U.S. companies boast robust balance sheets, a considerable amount of defaults originate from companies with negative cash flows and high debt levels. Experts label these companies heavily in debt as “zombies,” as they fight to stay afloat, barely able to cover the interest on their debts, and frequently teetering on the brink of collapse. Penny stocks with solid balance sheets and low debt levels offer one of the best ways of diversifying an investment portfolio at highly discounted valuations.
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Our Methodology
To make our list of the 10 Best Debt Free Penny Stocks to Buy Now, we used the Yahoo Finance and Finviz stock screeners to find penny stocks with a market cap of over $500 million. Next, we shortlisted the stocks whose enterprise value was less than the market cap and had a debt of less than $50 million. Finally, we ranked these cash-rich stocks in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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).
10 Best Debt-Free Penny Stocks to Buy Now
10. Super Group (SGHC) Limited (NYSE:SGHC)
Market Cap as of September 13: $1.76 Billion
Enterprise Value: $1.45 Billion
Hedge Funds Holding Stakes as of Q2 2024: 7
Super Group (SGHC) Limited (NYSE:SGHC) is one of the best debt-free penny stocks to buy now when Federal Reserve interest rate cuts are poised to bolster consumers’ purchasing power. Operating as an online sports betting and gaming operator, the company should benefit from increased liquidity in the market due to lower interest rates.
The company operates through two leading platforms: Betway, one of the most renowned online sports betting platforms, and Spin, a multi-brand online casino providing various gaming options such as table games and slot machine games.
Super Group (SGHC) Limited (NYSE:SGHC) already benefits from lower inflation levels, as reflected in its solid second-quarter results. Super Group delivered record revenues in the second quarter at $451 million, representing a 9% year-over-year increase. Strong revenue growth was due to robust performance from both its platforms. The company also announced a notable rise in Monthly Active Users to 4.5 million, marking a 21% growth compared to the year before.
Consequently, Super Group (SGHC) Limited (NYSE:SGHC) exited the quarter in a solid financial position with a debt-free balance sheet and $340 million in unrestricted cash. Buoyed by the strong financial position, the company approved its first-ever dividend of $0.10 a share.
While trading at a discount with a price-to-earnings multiple of 8, it is one of the best penny stocks to own owing to its low debt holding of $29.8 million. Additionally, the stock yields 2.86%, making it a solid pick for passive income.
In Q2 2024, seven hedge funds held Super Group (SGHC) Limited (NYSE:SGHC)’s stocks, maintaining the same number as in the previous quarter.
9. Cronos Group Inc. (NASDAQ:CRON)
Market Cap as of September 13: $824.85 Million
Enterprise Value: -$21.34 Million
Hedge Funds Holding Stakes as of Q2 2024: 12
Cronos Group Inc. (NASDAQ:CRON) is one of the best debt-free penny stocks to buy now to gain exposure in the multibillion cannabis sector at a cheap valuation. As of the end of June the company only had about $1.9 million in debt on its balance sheet.
Operating as a cannabinoid company, it engages in the cultivation, production, and marketing of cannabis products. Its product line includes dried flowers, pre-rolls, oils, vaporizers, edibles, and cannabis tinctures under the Spinach.
It stands as one of the biggest marijuana companies in Canada, having expanded into Israel and Europe. It encompasses three distinct brands, covering both recreational and medical cannabis products.
In Q2 2024, Cronos Group Inc. (NASDAQ:CRON) set a new record for its highest quarterly net income, reaching $27.8 million, marking a 46% increase compared to the previous year’s period. This surge in revenue was driven by a 46% increase year-over-year in Canada, a 27% increase year-over-year in Israel, expansion in Germany, and the start of sales in the United Kingdom. Gross profit of $6.3 million in Q2 2024 increased by $3.2 million from Q2 2023. The increase was primarily due to higher cannabis flower and extract sales in Canada, Germany, and the U.K.
The cannabis company has grown its revenue over the years and reduced its losses by a substantial amount. These positive financial results could enable the stock to continue its upward trend, which was initially sparked by the hopeful outlook on U.S. marijuana legalization. This is the second valid reason to consider purchasing this stock.
Even if the U.S. federal government does not legalize marijuana, the hopefulness surrounding it and the expectation could extend the upward phase of many Canadian marijuana companies, including Cronos Group Inc. (NASDAQ:CRON). Numerous states have approved the use of cannabis for medical and recreational purposes, and the addition of more states to this list could also strengthen Crono’s long-term outlook.
Shares of Cronos Group Inc. (NASDAQ:CRON), were held by 12 hedge funds in the Insider Monkey database at the end of Q2 2024.
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