In this article, we will take a detailed look at the 14 Cheap Penny Stocks to Buy According to Analysts. For a quick overview of such stocks, read our article 5 Cheap Penny Stocks to Buy According to Analysts.
The US stock market is going through a pullback as optimism around rate cuts fades. The AI-led rally that boosted stock valuations over the past few months caused several analysts to advise caution and expect a pullback. In this backdrop, value vs growth stocks debate has resurfaced as many financial experts believe that with the era of zero interest rates behind us, value investing is set to come back with a vengeance. Since 2007, growth crushed value as low interest rates and economic growth urged investors to pile into risky stocks. However, things changed in 2022 when the Fed decided to begin its battle against inflation. As a result, the MSCI World Growth Index declined 30% in 2022, compared to a decline of about 8.5% for MSCI World Value. But growth came on top again in 2023 when the AI revolution started that benefitted major stocks like Microsoft Corp (NASDAQ:MSFT) and NVIDIA Corp (NASDAQ:NVDA).
High Interest Rate Environment to Last “Not Months, But Years”
While higher rates had caused a worry for many, some analysts welcomed the new era where easy money is no longer available. For example, Vanguard in a report published in December 2023 said that the return of “sound money” was part of a “structural shift” in the market. Vanguard called this change the “single best economic and financial development in the last 20 years.” Vanguard in its report made some prescient comments that are proving true as the Fed continues to grapple with the inflation problem and a “higher for longer” scenario becomes a possibility:
“Barring an immediate 1990s-style productivity boom, a recession is likely a necessary condition to bring down the rate of inflation, through weakening demand for labour and slower wage growth. As central banks feel more confident in inflation’s path toward targets, we expect they will start to cut policy rates in the second half of 2024. That said, we expect policy rates to settle at a higher level compared with after the GFC and during the COVID-19 pandemic. Vanguard research has found that the equilibrium level of the real interest rate, also known as r-star or r*, has increased, driven primarily by demographics, long-term productivity growth, and higher structural fiscal deficits. This higher interest rate environment will last not months, but years. It is a structural shift that will endure beyond the next business cycle and, in our view, is the single most important financial development since the GFC.”
Analysts Say Buy Stocks from Undervalued Sectors in 2024
In this changing economic backdrop, more and more analysts and experts are recommending investors to pile into undervalued stocks with strong growth potential and fundamentals. T. Rowe Price earlier this year said in a report that while tech stocks saw a huge run in late 2023, defensive areas such as healthcare, utilities, among others, were “left behind” as the market’s focus was more on momentum instead of fundamentals. This is about to change, according to T. Rowe, as the firm said it sees “pockets of opportunity” in these industries over a five-year horizon.
Performance and Returns of Investing in Undervalued Stocks
Investors are indeed paying heed to this advice, since latest data shows that both hedge funds and corporate insiders are piling into banks, healthcare and utilities stocks. WisdomTree Low P/E Index (WTLPE), which tracks the performance of large-cap US stocks with low P/E ratios and positive earnings, is up 4.25% year to date in 2024, and 14% over the past one year. The fund is invested mostly in defensive industries, with a heavy tilt towards financials, healthcare and utilities.
Methodology
For this article we first used a stock screener to identify penny stocks with low P/E ratios having Buy or better ratings from Wall Street analysts. From this list we chose 14 stocks that have the highest upside potential from their current price based on average analyst price targets.
14. Origin Materials Inc (NASDAQ:ORGN)
Average Analyst Price Estimate: $2.23
Upside Potential: 260%
Carbon-negative materials company Origin Materials Inc (NASDAQ:ORGN) is one of the cheap penny stocks with upside potential. Analysts on Wall Street expect the stock’s price to reach around $2.2, while its current price is $0.62.
13. Five Point Holdings LLC (NYSE:FPH)
Average Analyst Price Estimate: $12
Upside Potential: 279%
Five Point Holdings LLC (NYSE:FPH) develops mixed-use and planned communities in California.
As of the end of 2023, 14 hedge funds tracked by Insider Monkey had stakes in Five Point Holdings LLC (NYSE:FPH). The biggest stakeholder of Five Point Holdings LLC (NYSE:FPH) was Christian Leone’s Luxor Capital Group which owns a $32 million stake in Five Point Holdings LLC (NYSE:FPH).
Third Avenue Real Estate Value Fund stated the following regarding Five Point Holdings, LLC (NYSE:FPH) in its fourth quarter 2023 investor letter:
“Furthermore, Five Point Holdings, LLC (NYSE:FPH) (a U.S.-based land development company) launched an exchange offer for its Senior Unsecured Notes, whereby it proposed to pay down $100 million of principal, while also extending the maturity date on the remaining amount to 2028 and introducing an optional amortization feature. The offer was accepted by more than 99.0% of the holders, thus allowing the company to move forward with the well-designed transaction that will further reduce debt and grant Five Point more flexibility as it seeks to unlock the value embedded in its incredibly scarce land positions—an amount that seems much more significant than currently implied by the prevailing price for its common stock, in Fund Management’s view.
The Fund participated in several of these developments, primarily by (i) increasing its position in Ingenia Communities alongside the Sun Communities offering and (ii) agreeing to engage in the Five Point exchange offer, which is expected to close in January 2024. The Fund also increased its position in Sun Communities during the period and trimmed back certain holdings for portfolio management purposes.”
12. Spar Group, Inc (NASDAQ:SGRP)
Average Analyst Price Estimate: $7
Upside Potential: 291%
Merchandising and brand marketing services company Spar Group, Inc (NASDAQ:SGRP) shares have been on an absolute tear this year, up 77% through April 15. Earlier this month Spar Group, Inc’s (NASDAQ:SGRP) board approved a share repurchase program of up to 2.5 million of Spar Group, Inc’s (NASDAQ:SGRP) shares of common stock. Unlike Microsoft Corp (NASDAQ:MSFT) and NVIDIA Corp (NASDAQ:NVDA), which are highly popular among hedge funds, Spar Group is a small company with low hedge fund sentiment.
11. Sound Group Inc ADR (NASDAQ:SOGP)
Average Analyst Price Estimate: $14.53
Upside Potential: 332%
Headquartered in Singapore, Sound Group Inc ADR (NASDAQ:SOGP) is an audio platform company. The stock jumped earlier this year after Sound Group Inc ADR (NASDAQ:SOGP) launched new AI-powered applications for the international market.
10. Spero Therapeutics Inc (NASDAQ:SPRO)
Average Analyst Price Estimate: $7.5
Upside Potential: 357%
Masschusset-sbased Spero Therapeutics Inc (NASDAQ:SPRO) shares have gained about 7% year to date through April 15. Spero Therapeutics Inc (NASDAQ:SPRO) is working on treatments for rare and infectious diseases.
9. Scynexis Inc (NASDAQ:SCYX)
Average Analyst Price Estimate: $6.88
Upside Potential: 374%
Scynexis Inc (NASDAQ:SCYX) is one of the notable cheap penny stocks to buy according to analysts. The stock is not having a good year after GSK amended its license agreement with Scynexis Inc (NASDAQ:SCYX) for its antifungal drug Brexafemme (ibrexafungerp tablets). However, some analysts say Scynexis Inc (NASDAQ:SCYX) has a strong cash runway and catalysts that make it an undervalued play. Unlike Microsoft Corp (NASDAQ:MSFT) and NVIDIA Corp (NASDAQ:NVDA), SCYX is a small company but the stock has high upside potential.
8. S&W Seed Co (NASDAQ:SANW)
Average Analyst Price Estimate: $2
Upside Potential: 376%
Agricultural products company S&W Seed Co (NASDAQ:SANW) is one of the cheap penny stocks analysts like. Based on its average analyst price estimate, the stock has an upside potential of 376%. Insider Monkey’s database of 933 hedge funds shows that five funds had stakes in S&W Seed Co (NASDAQ:SANW) as of the end of 2023.
During its earnings call in February, the company talked about guidance and future plans:
“For the year we continue to remain on target to achieve our stated goal of $11.5 million to $14 million of Double Team sales more than doubling our revenue from last year and don’t forget our gross margins on Double Team are approximately 65% which will be a key driver of future bottom-line improvement. Beyond our sorghum trait technology portfolio, another key value driver is our agreement with Shell to develop Camelina as a feedstock for biofuels, which Shell has a take-off agreement to develop green diesel SAF jet fuel production. We successfully achieved all the stated objectives required of VBO, and received the $6 million payment from Shell on February 6, 2024. As a reminder, the total paid to S&W inclusive of cash payments and repayments of a loan on the Napa facility was $20 million from Shell.”[read the full earnings call transcript here].
7. Fundamental Global Inc (NASDAQ:FGF)
Average Analyst Price Estimate: $7
Upside Potential: 383%
Fundamental Global Inc (NASDAQ:FGF) was formed earlier this year as a result of the merger between FG Financial Group (NASDAQ:FGF) and FG Group Holdings (NYSE:FGH). Fundamental Global Inc (NASDAQ:FGF) offers services like reinsurance, asset management, merchant banking, manufacturing and managed services.
6. Greenland Technologies Holding Corp (NASDAQ:GTEC)
Average Analyst Price Estimate: $9.5
Upside Potential: 385%
Industrial vehicles and power systems company Greenland Technologies Holding Corp (NASDAQ:GTEC) is one of the cheap penny stocks to buy according to analysts. Over the past one year the stock has gained about 24%.
Earlier this year Greenland Technologies Holding Corp (NASDAQ:GTEC) approved the spin-off of its drivetrain systems business and approved a plan to separate its electric industrial vehicles and drivetrain systems segments into two independent, publicly-traded companies.
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Disclosure. None. 14 Cheap Penny Stocks to Buy According to Analysts was initially published on Insider Monkey.