Stocks may technically be in a bull market, but mainly mega-cap tech stocks have benefited. With other types of stocks, including the best penny stocks, returns have been a lot more mixed.
Amongst penny stocks (stocks trading for $5 per share or less), especially penny value stocks, economic issues like high inflation, rising interest rates, and slowing economic growth continue to have an impact on their performance.
Yet while the boom times have not exactly returned for smaller, less growth-focused stocks, that does not mean you need to stay away. Why? Among the scores of stocks still trying to recover from the 2022 bear market, there are plenty of names that, while not taking off in the short term, have the potential to do so in the long term.
That’s the story here with these seven best penny stocks. Trading at big discounts to their underlying values, as company and/or macro-specific catalysts play out, each one could produce outsized returns over an extended time frame.
Alto Ingredients (ALTO)
So far this year, it has been a rollercoaster ride in terms of returns with Alto Ingredients (NASDAQ:ALTO) stock. Shares in this producer of specialty alcohol products and ethanol fuel tanked earlier in the year, following the release of a disappointing quarterly earnings report.
More recently, though, ALTO stock has bounced back in a big way, zooming by nearly 150% since May. So, after this big run up, kicked off by a better-received Q1 2023 earnings report, Alto is running out of runway, right? Not so fast.
Investor Jeremy Raper believes the company is worth upwards of $6.50 per share to a strategic buyer, due to the ethanol “subsidy bonanza” stemming from the Inflation Reduction Act. As such, he is pressing management to sell the company. While it’s not a lock that management will heed this investor’s advice, the emergence of shareholder activism makes ALTO worthy of a closer look.
ARC Document Solutions (ARC)
After coughing back some of its pandemic-era gains during 2022, ARC Document Solutions (NYSE:ARC) has moved moderately higher since the start of 2023. Yet while shares in this digital printing company (focused primarily on serving the construction and engineering industries) are well in the green this year, further gains may lie ahead.
Despite concerns that macroeconomic challenges will impact its business, the company continues to report solid results. Besides maintaining its 5.93% dividend, management also plans to put steady profits to work in another way that benefits ARC stock investors.
That would be ARC’s plans to extend its longstanding share repurchase program. Incrementally increasing the underlying per-share value of ARC with each share repurchase, the stock could experience outsized price appreciation in the coming years.
Butler National (BUKS)
In past coverage of Butler National (OTCMKTS:BUKS), I have detailed its bona fides as one of the best penny stocks, especially among penny stocks trading in the over-the-counter, or OTC, market. A big reason for this has to do with this aerospace and casino gaming company’s deep-value status, along with the presence of a catalyst that could help realize its underlying value.
That is, a CEO change in May could be the first step in Butler pursuing strategic alternatives in order to remove the “conglomerate discount” currently applied to BUKS stock. Don’t get me wrong. I’m not saying that Butler will be sold or restructured in the immediate future.
However, while it may take time, the potential upside is likely substantial. BUKS trades for less than 10 times earnings, while most aerospace and casino stocks trade at materially higher earnings multiples (20 times and 15 times earnings, respectively).
Vaalco Energy (EGY)
As crude oil remains in a slump, so too does Vaalco Energy (NYSE:EGY) stock. Yet if you are bullish on energy prices spiking again, this may be one of the top penny stocks to buy for maximum exposure.
Even if you are less confident in an oil price rebound, you may still want to consider buying EGY stock. Oil exporters like Saudi Arabia continue to cut output. If worries about the global economic downturn ease, crude oil prices could begin to climb again.
This is likely to have an outsized impact on Vaalco’s earnings, and in turn, its stock price. Trading at a deeply discounted 4.3 times forward earnings, EGY also has the potential to benefit from multiple expansion, if oil stocks come back in favor. Alongside this possible upside, EGY also has a 6.6% dividend yield.
Jerash Holdings (JRSH)
Jerash Holdings (NASDAQ:JRSH) has pulled back recently, and for a good reason. The current downturn is having an even larger-than-expected impact on the apparel manufacturer’s operating performance. Last quarter, Jerash reported a net loss of $2 million (16 cents per share). The sell side was expecting earnings of 2 cents per share.
But even as a recovery may take time for Jerash, with analysts walking back prior forecasts for the next two fiscal years, JRSH stock may still be one of the best penny stocks to buy. At least, in terms of the stock’s risk/return proposition.
As a Seeking Alpha commentator recently pointed out, JRSH’s big discount to its book value provides a margin of safety. This could lower downside risk. At the same time, various factors could enable this stock (at $3.70 per share today) to eventually make its way to $8 per share.
Pitney Bowes (PBI)
Admittedly, the bull case for Pitney Bowes (NYSE:PBI) is a bit binary. Either activist investor Hestia Capital (which won a proxy fight for four seats on PBI’s board earlier this year) successfully implements its proposed turnaround plan for the mailing and shipping equipment and services company, or it doesn’t.
Yet while a failed turnaround could sink PBI stock lower, a successful turnaround could get this penny stock back to double-digit price levels. Even partial success selling off non-core assets, cutting costs, and growing more promising aspects of the business may lead to high double-digit or perhaps even triple-digit gains.
It’s a risky situation. A turnaround, whether partially or completely successfully, may need some time to take shape. However, the potential rewards far outweigh these concerns. With this, when it comes to the penny stocks to buy with the greatest potential, PBI belongs near the top of the list.
Vaso (VASO)
Vaso (OTCMKTS:VASO) is not only one of the best penny stocks trading at sub-$1 per share prices, as I have noted previously. This healthcare equipment and IT stock is also one of the top penny stocks overall. Why?
For one, it’s one of the cheapest stocks out there. VASO stock trades for 3.1 times trailing 12-month earnings. The company is also sitting on a large cash position ($18.3 million) relative to its market cap ($43 million). Vaso could put this war chest to work to grow the business.
More importantly, even after rallying by 153.6% over the past year, shares may have room for additional gains. Already trading on the OTCQB, the OTC market’s middle tier, Vaso could decide to uplist again to a major market like the Nasdaq. Such a move could help further bridge the valuation gap.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
