In this article, we discuss the 10 best NYSE penny stocks to buy along with the latest inflation report and its probable impact on small-cap stocks.

The latest Consumer Price Index (CPI) data by the Bureau of Labor Statistics was released on June 12, which suggests a deceleration in inflation, which could be positive for the US market and economy. Stabilizing prices, particularly in core categories like shelter and food, indicate potential relief for consumers and might influence the Federal Reserve’s monetary policy decisions favorably. The steadying of inflation could enhance consumer confidence and support economic stability.

Additionally, the latest inflation report for May, released on June 28, showed that personal income in the U.S. increased by $114.1 billion, up 0.5%, while disposable personal income (DPI) also rose by 0.5% to $94 billion, showing its slowest increase since March 2021. The core Personal Consumption Expenditures (PCE) index, a key measure for the Federal Reserve that excludes food and energy costs, rose by 0.1% from April, matching Wall Street’s expectations and slowing from April’s 0.3% rise. Annually, core PCE increased by 2.6% which was the smallest gain in over three years.

The data showed a steady rise in income and spending. Real DPI, adjusted for inflation, grew by 0.5%, and real PCE rose by 0.3% due to a 0.6% increase in spending on goods and a 0.1% increase in spending on services. Healthcare, housing, and transportation services contributed to the rise in service spending, while prescription drugs led to an increase in goods spending. Overall, the data showed rising incomes, controlled inflation, and increased consumer spending. This combination suggests steady economic growth and stability, along with manageable inflationary pressures.

What Does the Data Mean for Small-Cap Stocks?

We discussed the key developments of the Fed’s latest meeting in our best Robinhood stocks article, where we mentioned that the chairman’s statement indicated that there has been some improvement in lowering inflation toward the desired 2% target. However, he emphasized the need for more data and evidence to confirm that this downward trend is consistent and sustainable. This means that the latest data might not be sufficient enough yet, but it still is a good start to making up the Fed’s mind toward rate cuts. The CME FedWatch Tool reveals that 58% of the market believes that the Fed will cut rates by 25 basis points.

Back in April, Peter Kraus, CEO of Aperture Investors told CNBC that inflation has restricted the growth of small-cap stocks and they have underperformed the large-cap stocks by 9% per annum for the last three years. While he had some recession concerns, he said that if the interest rates decline, the small-cap stocks are going to outperform. He noted that over the long term, even though the falls of the broader market and the small caps are different, the returns are usually equal.

Keeping that in mind, we look at some of the best NYSE penny stocks in our current article. While not all of them are small-cap stocks, they could certainly benefit from a decline in interest rates.

Our Methodology

For this article, we identified over 60 stocks trading under $5 with Buy or better ratings from Wall Street analysts and a market cap of over $200 million. We further narrowed down our list to 10 stocks based on multiple but different metrics such as future growth prospects, valuations, and shareholder returns. We listed the stocks in ascending or of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds. We preferred the stocks that were profitable over the last twelve months. Nevertheless, some stocks in the list are yet to post profits and analysts keep an optimistic outlook for them.

Why do we care about what hedge funds do? 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 NYSE Penny Stocks To Buy

10. Waterdrop Inc. (NYSE:WDH)

Share Price as of June 27: $1.10

Number of Hedge Fund Holders: 1

Waterdrop Inc. (NYSE:WDH) is a China-based company that offers online insurance brokerage services. The company is trading at 9.4x its 2024 earnings which makes its valuation attractive enough for investors to explore the stock more. It is our 10th best NYSE penny stock to buy.

In early 2024, amidst ongoing economic recovery, the personal insurance sector showed consistent growth, which created a favorable environment for Waterdrop Inc. (NYSE:WDH). The company reported a Q1 total revenue of RMB705 million (RMB 1 = US$0.14), which is a 16.3% increase year-over-year. Additionally, the company achieved a GAAP net profit of RMB80.6 million, which grew 62.2% year-over-year. It marks the ninth consecutive quarter of profitability since Q1 of 2022, which is a clear sign of the company’s sustained financial health and operational efficiency.

Moreover, Waterdrop Inc. (NYSE:WDH) recently issued its first special cash dividend since its 2021 listing. The dividend amounted to US$0.04 per ADS or US$0.004 per ordinary share. Furthermore, the company has actively pursued share buybacks, repurchasing 45.5 million ADS in the open market as of the end of May 2024. This initiative, which began with the announcement of a stock repurchase program in September 2021, has totaled approximately $95.9 million in consideration.

Renaissance Technologies is the only shareholder of Waterdrop Inc. (NYSE:WDH) and has a position worth $210,000, as of March 31.

9. Lithium Americas Corp. (NYSE:LAC)

Share Price as of June 27: $2.78

Number of Hedge Fund Holders: 4

Lithium Americas Corp. (NYSE:LAC) is a lithium exploration and development company operating in the US and Canada. The company owns the Thacker Pass project, which is situated in McDermitt Caldera where the largest known lithium deposit in the world has been discovered.

The Thacker Pass project is the biggest growth prospect of Lithium Americas. The company is well-positioned to benefit from the growing demand for lithium, driven by the global transition to electric vehicles and renewable energy storage. The U.S. Department of Energy’s $2.26 billion loan supports the strategic importance of this project for U.S. national interests. Moreover, General Motors’ exclusive rights to Phase 1 production for up to 10 years further validate the project’s potential. The project’s Phase 1 alone could supply enough lithium to meet the battery needs of approximately 800,000 EVs annually, which positions Lithium Americas Corp. (NYSE:LAC) as a key player in the lithium supply chain. Although there has been some pressure on lithium prices recently, the company’s management believes that they will normalize when the project is operational in 2026.

As of the first quarter, 4 hedge funds were bullish on Lithium Americas Corp. at a total stake value of $2.5 million. It takes the 9th position on our list of best NYSE penny stocks and takes the top spot on our list of stocks that will 10x in 5 years according to analysts.

8. Yalla Group Limited (NYSE:YALA)

Share Price as of June 27: $4.58

Number of Hedge Fund Holders: 6

Yalla Group Limited (NYSE:YALA) is a Dubai-based company that offers social networking and gaming applications, called Yalla and Yalla Ludo, respectively. At a stake value of $6.4 million, 6 hedge funds held positions in Yalla Group Limited (NYSE:YALA) in the first quarter. As of Q1, Millennium Management is the top shareholder in the company and has a position worth $3.6 million.

Yalla Group Limited (NYSE:YALA) has risen prominently in the MENA region with its original voice-based app, which initially achieved strong revenue growth in the double and even triple digits. However, the company’s newer gaming segment has emerged as its primary growth driver. In Q1, the robust performance of its flagship applications contributed to the company’s revenue of $78.7 million, a 7.1% increase from $73.5 million in the same period last year. Also, the company’s average monthly active users grew by 14.6% year-over-year to 37.8 million. Additionally, the average revenue per paying user rose to $6.03 in the quarter, up from $5.39 in the previous year’s first quarter. These metrics highlight the increasing engagement and monetization potential of its platform. Furthermore, the company’s ongoing improvements to the gaming experience showed results in the quarter as paying users increased by 7.3% quarter-over-quarter.

Yalla Group Limited (NYSE:YALA) has adjusted its gaming strategy to focus on partnerships with established studios known for their successful game releases. By joining the UK Interactive Entertainment Association (Ukie), the world’s oldest video game and interactive entertainment trade body, the company aims to strengthen industry ties and strengthen its market position. In its Q1 2024 earnings call, Chairman and CEO Mr. Tao Yang emphasized the importance of global collaboration with game developers and the promotion of industry connectivity.

Yalla Group is one of the best NYSE penny stocks to buy as it is trading at a significant discount to its industry. The company is trading at a forward PE ratio of 6.4x compared to the industry average of around 25x. The Street-high estimate of $7 shows an upside of nearly 54% to the company’s stock at current levels on June 27.