In this article, we will discuss the 10 Best Fundamentally Strong Penny Stocks to Invest In.
As per Royce Investment Partners, small caps saw a rebound in Q3, exhibiting a strong advance on both an absolute and relative basis. As per the investment management firm, the Russell 2000 Index saw an increase of ~9.3% in Q3 2024, surpassing the large-cap Russell 1000 Index (which rose ~6.1%) and the mega-cap Russell Top 50 Index (which increased ~4.2%). The investment firm believes that small caps see a long road back to the top, with large caps holding a commanding lead through the initial 9 months of 2024.
On a YTD basis, the Russell 2000 saw an increase of ~11.2% compared to the respective gains of ~21.2% and ~27.3% for the Russell 1000 and Russell Top 50, in the third quarter of 2024. The investment firm said a confluence of factors might support small-caps in sustaining market leadership. The still-growing US economy, together with a more typical interest rate environment, might support small-cap leadership.
Investment Themes in the US
As per Russell Investments, the US equity-market leadership reversed during Q3 2024, with small-cap stocks surpassing the returns delivered by their large-cap counterparts. Also, the value factor outperformed the growth factor. This means there was a significant pivot from the first 2 quarters of 2024, during which market returns were dominated by the US large-cap growth stocks— the Magnificent 7, to be precise.
Russell Investments highlighted that, from Q2 2024 to Q3 2024, there was a moderate change in the US average daily turnover, with $578.8 billion in Q3 2024 as compared to $581.5 billion in Q2 2024. Q3 2024 saw a shift in investor focus from high-flying tech stocks to more traditional sectors. Small-cap and value stocks surpassed the performance of large-cap and growth stocks, thanks to the broader market rotation. Moreover, utility stocks saw significant traction due to higher investments in energy infrastructure in a bid to support the elevated demand from AI and data centers.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Expectations for 2025
Wall Street experts believe that the shifts in monetary policy, sectoral innovation and developments, a favorable interest rate environment, and supportive regulatory environment are expected to fuel growth in small and emerging stocks over the next year.
As per Francis Gannon, Co-Chief Investment Officer, and Managing Director of Royce Investment Partners, earnings form the foundation for long-term performance. This means that earnings tend to support the broader market over the long term. He noted that the Russell 2000 saw a near-record number of companies having no earnings, with a total of ~44.6% (as of September end). Despite this, the earnings growth for the small-cap companies that have them has been estimated to be higher than large-cap ones in 2025.
Chuck Royce, Founder and Senior Advisor at Royce Investment Partners, believes that the lower rates are expected to help the M&A activity. The potential buyers have been waiting for the US Fed to act before they go ahead with acquisitions. He believes that many small-caps want to get merged. Therefore, there are expectations of more strategic buyouts moving forward.
With these trends in view, let’s look at the best fundamentally strong penny stocks to invest in.
A financial analyst at his computer monitor, tracking the public company’s investments.
Our Methodology
To list the 10 Best Fundamentally Strong Penny Stocks to Invest In, we used Finviz and Yahoo screeners to extract stocks trading under $5. Next, we selected the companies that have reliable 3-year revenue and 3-year net income growth rates. Finally, the stocks were arranged in ascending order of their hedge fund holdings, as of Q2 2024.
Why are we interested in 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).
10 Best Fundamentally Strong Penny Stocks to Invest In
10) China Shenhua Energy Company Limited (OTC:CUAEF)
Stock Price as of 4 November: $4.2
3-Year Revenue Growth: ~5%
3-Year Net Income Growth: ~9.03%
Average Upside Potential: 5.5%
Number of Hedge Fund Holders: N/A
China Shenhua Energy Company Limited (OTC:CUAEF) is engaged in the production and sale of coal and power, railway, port, and shipping transportation businesses in the People’s Republic of China and internationally.
China Shenhua Energy Company Limited (OTC:CUAEF) released major operational data in September 2024. Its gross power generation saw an increase of 32.9% on the YoY basis to 21.98 billion kwh. Its total power output dispatch rose by 33.7% YoY to 20.77 billion kwh. The main reasons for the growth in gross power generation and total power output dispatch were higher power demand in the regions where China Shenhua Energy Company Limited (OTC:CUAEF)’s generator units are located, the growth of power generation brought by the new power generator units, and the lower base of the same period last year.
Wall Street experts opine that improving operating efficiency after the overhaul of coal-to-olefin production equipment should continue to aid polyethylene sales. Furthermore, a rise in the sales volume of purchased coal and power output dispatch might also result in higher revenue. The analysts opine that China Shenhua Energy Company Limited (OTC:CUAEF)’s growth potential is linked to its diversified energy portfolio.
Considering that its core operations revolve around coal production, coal-fired power generation, and an integrated coal transportation network, the company’s balanced structure offers resilience in the short to medium term, which should help China Shenhua Energy Company Limited (OTC:CUAEF) achieve long-term growth.
As per Wall Street analysts, the shares of China Shenhua Energy Company Limited (OTC:CUAEF) have an average price target of $4.43.
9) Zijin Mining Group Company Limited (OTC:ZIJMF)
Stock Price as of 4 November: $2.1585
3-Year Revenue Growth: ~12.4%
3-Year Net Income Growth: ~30.3%
Average Upside Potential: Over 100%
Number of Hedge Fund Holders: N/A
Zijin Mining Group Company Limited (OTC:ZIJMF) is a mining company that is engaged in the exploration, mining, processing, refining, and sale of gold, non-ferrous metals, and other mineral resources in Mainland China and internationally.
Wall Street analysts opine that Zijin Mining Group Company Limited (OTC:ZIJMF)’s well-diversified product portfolio of precious and base metals and diversified operations should continue to act as potential tailwinds. Fitch Ratings expects that the company’s product diversification will further enhance with the ramp-up of its newly acquired lithium assets from 2025 and onwards. The firm also expects Zijin Mining Group Company Limited (OTC:ZIJMF) to stick to its acquisitive strategy to achieve a long-term goal of becoming a top miner globally by 2030.
In mid-April, Fitch Ratings highlighted that the company’s EBITDA is expected to remain strong as a result of higher gold and copper output. The production output additions are expected to be contributed by the expansion of existing projects like Julong in Tibet and Timok in Serbia and newly acquired projects.
On 9th October 2024, Zijin Mining Group Company Limited (OTC:ZIJMF) and Gold Source International Holdings Company Limited (a wholly-owned subsidiary of the company) entered into a share purchase agreement with Newmont Corporation and Newmont Golden Ridge Ltd (a wholly-owned subsidiary of Newmont, the Target Company). It was proposed that Gold Source International will acquire 100% of the equity interest in the target company, which is being held by Newmont for the purchase price of US$1 billion. The Akyem Gold Mine has favorable mineralisation conditions and significant potential for exploration and reserve increment.
Wall Street remains optimistic about this transaction, which aligns with Zijin Mining Group Company Limited (OTC:ZIJMF)’s development strategy and is beneficial for strengthening the resource reserves of the company’s gold segment, increasing its mine-produced gold output and supporting the realization of the targets of the company’s production volume plan for upcoming 5 years.
As per Wall Street analysts, the shares of Zijin Mining Group Company Limited (OTC:ZIJMF) have an average price target of $19.49.
8) Reit 1 Ltd (OTC:RETDF)
Stock Price as of 4 November: $4.16
3-Year Revenue Growth: ~8.2%
3-Year Net Income Growth: ~13.5%
Average Upside Potential: 87%
Number of Hedge Fund Holders: N/A
Reit 1 Ltd (OTC:RETDF) is engaged in the acquisition, management, and lease of real estate property. It holds real estate for commercial and industrial use mainly in the central region of Israel.
Reit 1 Ltd (OTC:RETDF) concluded Q2 2024 with a double-digit improvement in its main operational parameters, the NOI and the real FFO. The company was able to maintain high occupancy rates and saw an improvement in the occupancy rate in the area The offices, that increased to ~91.6% as compared to about 90% in the previous quarter of the year. Reit 1 Ltd (OTC:RETDF)’s strong results were mainly aided by the strength of the fund’s asset portfolio.
Wall Street analysts opine that the company’s growth is expected to be aided by the increased diversification primarily in industrial and logistics facilities. Reit 1 Ltd (OTC:RETDF)’s growth strategy revolves around geographic and sectoral diversification, development opportunities, and refurbishment and upgradation of existing properties.
Reit 1 Ltd (OTC:RETDF), in its presentation dated 30th June 2024, upgraded its 2024 NOI forecast from ILS 452 million – ILS 462 million to ILS 469 million – ILS 474 million. Also, it has upwardly revised its 2024 adjusted FFO from ILS 303 million- ILS 313 million to ILS 324 million – ILS 329 million. Reit 1 Ltd (OTC:RETDF) continues to develop and improve its property portfolio while, at the same time, remaining focused on increasing its sectoral and geographic diversification.
In H1 2025, Reit 1 Ltd (OTC:RETDF) expects to finish the construction of the logistics property in the house Shemesh. The company continues to market and improve the leading employment park in Ra’anana.
As per Wall Street, the shares of Reit 1 Ltd (OTC:RETDF) have average target price of $7.80.