In this article, we will take a look at the 10 best new penny stocks to buy now. To see more such companies, go directly to 5 Best New Penny Stocks to Buy Now.
The US stock market is currently in a see-saw mode as some analysts believe the recession that was dreaded for long might not become a reality, while others believe the economy is still not out of the woods and the anticipated recession might hit the markets sometime in 2024 instead of late 2023. Recession or not, history has taught us that those who make investment decisions with a long-term perspective often come out as winners. Jeremy Siegel in his book “Stocks for the Long Run” discusses how the US stock market’s total returns went upwards despite major changes in the society and economy over the last two centuries.
Importance of Having a Long-Term Approach
From post-industrial era to agriculture-based economy to services and technological revolution, the US has seen several ups and downs. There were recessions, depressions, inflation storms, rate hikes and unemployment crisis. Yet the stock market returns in the long run tend to increase. However, Siegel notes that long-term strong performance of stocks does not mean that they also reward investors in the short term. In fact the performance of stocks in the short term is starkly different. Siegel quotes data which says that from 1982 through 1999, during bull markets, stocks offered an “extraordinary” return of about 13.6% per year, which was more than double the historical average returns of the stock market. However, this rosy period came after a stock market bloodbath that went on from 1966 to 1981 where stock returns were 0.4% behind inflation per year. After the bull markets of 1982 to 1999, the stock market returns started to fall again and failed to post impressive returns. These stark differences between different periods is important to keep in mind, especially for beginner investors, who often start their investment journey with high hopes and end up getting disappointed when they don’t see high returns on their investments.
Siegel also discusses the relationship between stocks and macroeconomic indicators and the Federal Reserve’s policies. Siegel said that since money supply is now tightly linked to the government, consumer prices always go up every year. But when inflation goes out of control, the Federal Reserve steps in. While it’s a well-known fact that stocks tend to go up during easy monetary policies, Siegel shares some interesting data points on what happens when rate cuts take place. He shares that stock returns in the 3, 6, and 12 months following a reduction in rates were much higher than following increases in rates by the central bank. Investors were able to get high returns on stocks by simply reducing their exposure to equities when the Fed was tightening its policies and by increasing their bets on stocks when rates were coming down. But this has not always been the case, as Siegel says:
“But since 1990 the pattern has not been so reliable. After a long period of easing through the 1990–1991 recession, the Fed raised the fed funds target on February 4, 1994, when the S&P 500 Index was 481. The reaction in the bond and stock market was immediate, as stocks fell 2.5 percent and continued to slide another 7 percent by early April. Bond prices were devastated, as the 10-year Treasury jumped nearly 150 basis points in 1994, suffering its worst losses in years. But after April, stocks stabilized and then rose despite accelerated Fed tightening. By the time the Fed finally lowered rates on July 6, 1995, in response to the weakening economy, the S&P 500 stood at 554, about 15 percent higher than on the day the Fed began to raise rates. As the economy recovered and inflation threatened once again, the Fed tightened 25 basis points on March 25, 1997; yet stocks continued to rise. In response to the Asian crisis and chaos in the Treasury market caused by the failure of Long-Term Capital Management in August 1998, the Fed lowered the funds rate on September 29, 1998. But the stock market was 33.0 percent higher than it was 18 months earlier when the Fed first raised rates. As the U.S. economy sloughed off the Asian crisis, the Fed began tightening again on June 30, 1999, when the S&P Index rose to 1,373. But stocks continued upward, with the S&P 500 hitting its high on March 24, 2000, at 1,527, which was 12 percent higher than the previous June. In all these episodes, investors who had been out of the stock market when the Fed was raising rates would have given up large stock returns.”
Siegel in his book also address the question of whether stocks or bonds are better inflation hedges. He shares some data to back his claim that stocks could be strong inflation hedges over longer periods of time. However, he says that neither stocks nor bonds are inflation hedges in the short term.
Photo by Ruben Sukatendel on Unsplash
Our Methodology
In this article, we first used a stock screener to list down all stocks trading under $5 that went public over the past two years. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 943 hedge funds to gauge hedge fund sentiment for stocks. The list is ranked in ascending order of the number of hedge fund investors in these stocks.
Best New Penny Stocks to Buy Now
10. IO Biotech, Inc. (NASDAQ:IOBT)
Number of Hedge Fund Holders: 11
As of the end of the first quarter of 2023, 11 hedge funds in Insider Monkey’s database of 943 hedge funds reported owning stakes in IO Biotech, Inc. (NASDAQ:IOBT). The biggest stakeholder of IO Biotech, Inc. (NASDAQ:IOBT) during this period was Albert Cha and Frank Kung’s Vivo Capital with a $5.7 million stake in the company.
The clinical-stage biopharmaceutical company recently announced a $75 million private placement financing. Investors have agreed to buy 37.07 million shares of IO Biotech, Inc. (NASDAQ:IOBT)’s common stock and accompanying warrants to purchase up to an aggregate of 37.07 million shares of common stock, at a combined purchase price of $2.025 per share and accompanying warrant.
9. Douglas Elliman Inc. (NYSE:DOUG)
Number of Hedge Fund Holders: 12
Real estate company Douglas Elliman Inc. (NYSE:DOUG), which went public in 2021, ranks 9th in our list of the best new penny stocks to buy according to hedge funds. As of the end of the first quarter of 2023, 12 hedge funds in Insider Monkey’s database of 943 funds reported owning stakes in Douglas Elliman Inc. (NYSE:DOUG). Douglas Elliman Inc. (NYSE:DOUG) has lost a lot of value in 2023 amid a downturn in the real estate industry. However, Douglas Elliman Inc. (NYSE:DOUG) bulls believes the company could gain value in the future amid an expected rebound of the industry in 2024.
Douglas Elliman Inc. (NYSE:DOUG) recently posted Q2 results. GAAP EPS in the period came in at -$0.06 beating estimates by $0.01. Revenue in the quarter fell 24.3% year over year to $275.9 million, beating estimates by $33.84 million.
8. SoundHound AI, Inc. (NASDAQ:SOUN)
Number of Hedge Fund Holders: 13
Audio and speech recognition company SoundHound AI, Inc. (NASDAQ:SOUN) has been on a tear in 2023, thanks to the AI boom which is helping every company that uses AI–related products and services.
Earlier in August, SoundHound AI, Inc. (NASDAQ:SOUN) posted Q2 results. GAAP EPS in the quarter came in at -$0.10. Revenue in the quarter jumped 41.9% year over year to $8.8 million. SoundHound AI, Inc. (NASDAQ:SOUN) has about $130 million in total cash as of the end of June 2023.
A total of 13 hedge funds out of the 943 hedge funds tracked by Insider Monkey were long SoundHound AI, Inc. (NASDAQ:SOUN) at the end of the first quarter of 2023.
7. Rubicon Technologies, Inc. (NYSE:RBT)
Number of Hedge Fund Holders: 13
Rubicon Technologies, Inc. (NYSE:RBT) ranks 7th in our list of the best new penny stocks to buy now according to hedge funds. The Lexington, Kentucky-based operates a digital platform for waste and recycling solutions.
As of the end of the first quarter of 2023, 13 hedge funds out of the 943 funds reported having stakes in Rubicon Technologies, Inc. (NYSE:RBT).
In August, Rubicon Technologies, Inc. (NYSE:RBT) posted Q2 results. Net loss in the quarter came in at $22.8 million, which was an improvement of $5.0 million over the second quarter of 2022. Revenue in the quarter jumped about 6.1% year over year to $174.6 million, beating estimates by $3.25 million.
6. Nogin, Inc. (NASDAQ:NOGN)
Number of Hedge Fund Holders: 13
Ecommerce technology platform company Nogin, Inc. (NASDAQ:NOGN) ranks 6th in our list of the best new penny stocks to buy now. In May Nogin, Inc. (NASDAQ:NOGN) posted Q1 results. GAAP EPS in the quarter came in at -$2.11. Revenue in the quarter fell 33.8% year over year to $16.68 million. Nogin, Inc. (NASDAQ:NOGN)’s management during the quarterly results said that it has decided to “eliminate or scale back some legacy customer contracts to improve current and future profitability.” As a result of this measure Nogin, Inc. (NASDAQ:NOGN) expects to see a decline in its revenue in 2023 as compared to 2022. However, Nogin, Inc. (NASDAQ:NOGN) said that it expects to see its revenue accelerate in 2024 amid new customer wins.
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Disclosure: None. 10 Best New Penny Stocks to Buy Now is originally published on Insider Monkey.