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 Denison Mines Corp. (NYSE:DNN) 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 open pit mine with a large yellow excavator machine with tailings visible in the background, illustrating the uranium extraction process.
Denison Mines Corp. (NYSE:DNN)
Number of Hedge Fund Holders: 21
Denison Mines Corp. (NYSE:DNN) is a Canadian uranium development company that stands out for its high-quality assets and strong financial position. The company’s flagship project, Wheeler River, which includes the Phoenix and Gryphon deposits, is a cornerstone of its growth strategy. Phoenix, in particular, has impressive projected economics, with an all-in sustaining cost (AISC) below $20/lb and an after-tax net present value (NPV) of approximately $1.3 billion at current uranium prices. The internal rate of return (IRR) for Phoenix is exceptionally high, above 90%, making it a robust project even if costs rise.
Denison Mines Corp. (NYSE:DNN) strategic foresight is evident in its acquisition of 2.5 million pounds of uranium at $29.6/lb in 2021, which has since appreciated significantly. The company currently holds 2.2 million pounds, valued at around $180 million. This, combined with its substantial cash reserves of C$121 million, positions Denison as a well-capitalized player in the uranium industry, with no debt burden to weigh it down.
According to analysts, Denison Mines Corp. (NYSE:DNN) presents an attractive valuation, particularly in light of current uranium market conditions. With an enterprise value to net asset value (EV/NAV) ratio of 0.5, based on a uranium price of $80 per pound, the stock is trading at a discount. This undervaluation, combined with high-quality assets and strong financial metrics, offers a compelling investment opportunity within the uranium sector. As the long-term contract price of uranium continues to rise, Denison Mines is well-positioned to benefit from the increasing demand for this vital resource. This makes Denison Mines Corp. (NYSE:DNN) a standout choice in our list of ten best Canadian penny stocks to buy now.
In the second quarter of 2024, there were 21 hedge funds holding positions in Denison Mines Corp. (NYSE:DNN), as compared to 22 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $95.36 million. Steve Cohen’s Point72 Asset Management held the largest stake among these hedge funds during this period.
Overall DNN ranks 3rd on our list of the best Canadian penny stocks to buy. While we acknowledge the potential of DNN 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 DNN 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.