The bullish sentiment in the market is leading some investors to look at risk-on assets. Bitcoin may be an option, but for investors who prefer to stay in stocks, it may be time to look for some of the analysts’ favorite penny stocks.
The equity markets liked what they heard from Federal Reserve Chair Jerome Powell at the end of the Fed’s March meeting. While an exact date was not given, investors got confirmation that the Fed still plans up to three interest rate cuts this year.
That is allowing investors to step on the gas in a hunt for growth. Penny stocks become popular at times like this because these stocks typically have small market caps which tend to lead the way as investors move away from the safety of blue-chip stocks.
This is still a risky sector, but analysts have designed these seven companies as some of their favorite penny stocks. While they may not receive much analyst coverage, the analysts that cover them are decidely bullish.
Petco Health and Wellness (WOOF)
Petco Health and Wellness (NASDAQ:WOOF) stock is down more than 80% in the last 12 months. However, this may be a situation where analysts believe the only way to go is up.
The company is going through a change in the C-suite with R. Michael Mohan, formerly of Best Buy (NYSE:BBY) replacing outgoing chief executive officer (CEO) Ron Coughlin. The move comes at a time when Petco is trying to reinvent itself as a company.
There’s little doubt that pet owners are willing to spend on their pets. The problem is that this is a crowded sector with several established competitors like Chewy (NYSE:CHWY) that have a well-established e-commerce niche.
To deal with that Petco is moving more aggressively into the health and wellness sector. This includes a partnership with Nationwide to provide pet insurance.
Twelve analysts have issued a price target on WOOF stock. The consensus price of $2.95 is 49% higher than the stock’s price as of March 21, 2024. And out of 14 analysts that offer a rating, 4 give it a Strong Buy.
Granite Point Mortgage Trust (GPMT)
Granite Point Mortgage Trust (NYSE:GPMT) is a registered real estate investment trust (REIT) specializing in commercial real estate financing in Manhattan. GPMT stock is down 78% in the last five years, but every stock chart tells a story and there’s more context in play here.
Since falling to a low of $2.67 in April 2020, GPMT stock is up 84%. In that time the company has paid off $275 million in convertible bond maturities and bought back approximately two million shares.
More significantly, as is the case with REITs, the company continues to issue a dividend that currently yields 16.23% with a payout of 80 cents per share so investors who own $10,000 of GPMT stock will receive $6,490 in passive income annually.
On March 20, UBS Group reiterated its Buy rating on GPMT stock and lowered its price target from $6.50 to $6.00. However, that price target is still more than 20% higher than the stock’s closing price of $4.93 on March 21, 2024.
NextCure (NXTC)
If you’re looking for some favorite penny stocks, you’ll probably find a few biopharmaceutical stocks. That’s the case with NextCure (NASDAQ:NXTC). This is a pre-revenue company that most recently made news in December 2023. At that time the company announced that it was prioritizing LNCB74, the company’s first antibody drug conjugate (ADC) candidate that NextCure is developing in partnership with LegoChem Biosciences.
Like many clinical-stage biopharma companies, the issue for NextCure is cash. It needs a lot of capital to get its existing candidates through the trial stage and is actively seeking partnerships to do just that. In the meantime, the company is on track to submit an Investigational New Drug (IND) application for LNCB74 by the end of the year.
NXTC stock isn’t widely covered by analysts. However, the sentiment is largely bullish. Three analysts give the stock a consensus price target of $4 and four analysts give the stock a Strong Buy rating.
DiaMedica Therapeutics (DMAC)
DiaMedica Therapeutics (NASDAQ:DMAC) is another clinical-stage biopharmaceutical company that makes this list of favorite penny stocks. The company has a series of drugs at various stages including one in late-stage trials.
The primary concern with DiaMedica as it is with many companies that are still in growth mode is cash burn. It’s not that the company would have trouble raising the cash through a share offering, but that would dilute current shareholders.
Still, with biopharmaceutical companies, you have to play the long game. The company’s lead treatment is for acute ischemic stroke which afflicts over 7.5 million people globally every year. The company also has started trials for its cardio renal disease and severe inflammatory disease candidates.
Three analysts have a Strong Buy rating on the stock. The consensus price target of $7 gives DMAC stock 160% upside.
TeraWulf (WULF)
TeraWulf (NASDAQ:WULF) is a developer, owner, and operator of Bitcoin mining facility sites. It follows then that the company’s performance tracks with the resurgence of Bitcoin (BTC-USD). As Alex Sirois recently wrote, TeraWulf’s claim to fame is “as an environmentally clean Bitcoin miner” with 91% of its mined Bitcoin powered by zero-carbon energy sources.
The company released its preliminary full-year 2023 guidance and forecasts revenue of $69 million which is nearly five times better than the $15 million it generated in 2022.
This has allowed the company to improve its fundamentals starting with over $50 million of debt reduction. The company did not post a profit in the fourth quarter of 2023, but is expected to do so in 2024.
Only four analysts have offered a rating on WULF stock, but all four give the company a Strong Buy rating with three analysts having a consensus price target of $3.88, a 62% improvement from the stock’s price at the time of this writing.
Payoneer Global (PAYO)
At $4.98, Payoneer Global (NASDAQ:PAYO) is almost out of penny stock range. However, it’s covered by a surprising number of analysts. All 10 analysts that have offered a rating on PAYO stock give it a Strong Buy rating.
The fintech company offers many services for businesses including cross-border payments. That immediately brought to mind cryptocurrency. Payoneer does not allow users to buy cryptocurrency directly, but they can use Payoneer through one of several approved crypto exchanges.
The company is going to post their first full year of profitability and revenue is increasing on a year-over-year basis. Furthermore, analysts are forecating 54% year-over-year earnings growth in the next 12 montns. The company is likely to be impacted when the Fed lowers interest rates. However, at 22x forward earnings, PAYO looks attractively priced.
Purple Innovation (PRPL)
Purple Innovation (NASDAQ:PRPL) seemed like an odd choice on a list of favorite penny stocks. Nevertheless, PRPL stock is up 59% through March 21, 2024 and analysts are lining up behind the stock.
In January, the company announced that it had restructured its debt. At the time, the company said this would give it the financial flexibility to execute its growth plans. In the company’s fourth quarter and full-year 2023 earnings report, it appears that revenue, at least, may be heading in the right direction.
The concern here, as with many penny stocks, is profitability. The company did a brisk business in 2020 and 2021, but those days are long gone.
Purple went public in October 2015. This is the first time the company is dealing with a prolonged time of non-ZIRP monetary policy. Because it heavily relies on a healthy consumer and a robust housing market, it stands to benefit from lower interest rates. Nevertheless, until that time comes, PRPL stock remains a risk, but it may be one worth taking.
On the date of publication, Chris Markoch did not have (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.
