The 10 Best Fundamentally Strong Penny Stocks to Invest In

In this article, we discuss the 10 best fundamentally strong penny stocks to invest in.

According to Royce Investment Partners, small caps experienced a recovery in the third quarter, posting strong gains on both an absolute and relative basis. According to the investment management company, the Russell 2000 Index increased approximately 9.3% in the third quarter of 2024, outperforming the large-cap Russell 1000 Index (which rose approximately 6.1%) and the mega-cap Russell Top 50 Index (up approximately 4.2%). The investment firm believes small caps have a long road back to the top, while large caps have a commanding lead in the first nine months of 2024.

On a YTD basis, the Russell 2000 increased ~11.2% in the third quarter of 2024, compared to the respective gains of ~21.2% and ~27.3% for the Russell 1000 and Russell Top 50. The investment firm stated a confluence of various factors could help small caps maintain market leadership. The still-growing US economy, along with a more typical interest rate environment, could support small cap leadership.

Investment themes in the USA

According to Russell Investments, the lead in the U.S. stock market reversed in the third quarter of 2024, with small-cap stocks outperforming the returns of their large-cap counterparts. Additionally, the value factor exceeded the growth factor. This means that there was a significant reversal starting in the first two quarters of 2024, when market returns were dominated by US large-cap growth stocks – more specifically the Magnificent 7.

Russell Investments highlighted that there was a moderate change in average daily sales in the US from the second quarter of 2024 to the third quarter of 2024, with $578.8 billion in the third quarter of 2024 compared to $581.5 billion in the second Quarter 2024. In the third quarter of 2024, investors’ focus shifted from high-tech stocks to more traditional sectors. Small-cap and value stocks outperformed large-cap and growth stocks thanks to broader market rotation. Additionally, utility stocks saw a significant boost due to higher investments in energy infrastructure to support increased demand from AI and data centers.

ALSO READ: 7 Best Stocks to Buy for the Long Term and 8 Cheap Jim Cramer Stocks to Invest In.

Expectations for 2025

Wall Street experts expect changes in monetary policy, sectoral innovation and developments, a benign interest rate environment and a supportive regulatory environment are expected to boost growth in small and emerging stocks next year.

According to Francis Gannon, co-chief investment officer and managing director of Royce Investment Partners, returns form the foundation of long-term performance. This means that returns tend to support the broader market over the long term. He noted that the Russell 2000 had a near-record number of companies not making profits, with a total of about 44.6% as of the end of September. Nevertheless, it is estimated that the earnings growth of small-cap companies that have such businesses will be higher than that of large-cap companies in 2025.

Chuck Royce, founder and senior advisor at Royce Investment Partners, believes lower interest rates should support M&A activity. The potential buyers have been waiting for the Federal Reserve to act before starting acquisitions. He believes many small caps are looking to merge. Therefore, there is an expectation that there will be further strategic acquisitions in the future.

With these trends in mind, let’s look at the fundamentally strong penny stocks that are best to invest in.

A financial analyst at his computer monitor tracking the investments of the listed company.

Our methodology

To list the 10 best fundamentally strong penny stocks to invest in, we used Finviz and Yahoo screeners to identify stocks trading under $5. Next, we selected the companies that have reliable 3-year sales and 3-year net income growth rates. Finally, the stocks have been ranked in ascending order of their hedge fund holdings starting in the second quarter of 2024.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points (Further details can be found here).

The 10 Best Fundamentally Strong Penny Stocks to Invest In

10) China Shenhua Energy Company Limited (OTC:CUAEF)

Stock price as of November 4th: $4.2

Sales growth over 3 years: ~5%

3-year net income growth: ~9.03%

Average upside potential: 5.5%

Number of hedge fund owners: N/A

China Shenhua Energy Company Limited (OTC:CUAEF) is engaged in the production and sale of coal and electricity, as well as railway, port and marine transportation businesses in the People’s Republic of China and internationally.

China Shenhua Energy Company Limited (OTC:CUAEF) released key operating data in September 2024. Gross electricity generation increased by 32.9% year-on-year to 21.98 billion kWh. Total electricity sales rose 33.7% year-on-year to 20.77 billion kWh. The main reasons for the growth in gross power generation and total power sales were higher power demand in the regions where the generator units of China Shenhua Energy Company Limited (OTC:CUAEF) are located, as well as the growth in power generation from the new power generator units and the lower base the same period last year.

Wall Street experts believe that improving operational efficiency following the overhaul of coal-to-olefin production facilities should continue to boost polyethylene sales. In addition, an increase in the sales volume of purchased coal and electricity clearance could also lead to higher revenues. Analysts believe that China Shenhua Energy Company Limited’s (OTC:CUAEF) growth potential is linked to its diversified energy portfolio.

Considering that its core business focuses on coal mining, coal-fired power generation and an integrated coal transportation network, the company’s balanced structure provides resilience in the short to medium term, which should help China Shenhua Energy Company Limited (OTC:CUAEF) achieve this to achieve long-term growth.

China Shenhua Energy Company Limited (OTC:CUAEF) shares have an average price target of $4.43, according to Wall Street analysts.

9) Zijin Mining Group Company Limited (OTC:ZIJMF)

Stock price as of November 4th: $2.1585

3-year sales growth: ~12.4%

3-year net income growth: ~30.3%

Average Upside Potential: Over 100%

Number of hedge fund owners: N/A

Zijin Mining Group Company Limited (OTC:ZIJMF) is a mining company engaged in the exploration, mining, processing, refining and sales of gold, non-ferrous metals and other mineral resources in mainland China and internationally.

Wall Street analysts believe that Zijin Mining Group Company Limited’s (OTC:ZIJMF) well-diversified precious and base metals product portfolio and diversified operations should continue to act as a potential tailwind. Fitch Ratings expects the company’s product diversification to further improve as it expands its newly acquired lithium assets beginning in 2025. The company also expects Zijin Mining Group Company Limited (OTC:ZIJMF) to maintain its acquisition strategy to achieve its long-term goal of becoming a leading global mining company by 2030.

In mid-April, Fitch Ratings highlighted that the company’s EBITDA is expected to remain strong due to higher gold and copper production. The production increases are expected to be achieved through the expansion of existing projects such as Julong in Tibet and Timok in Serbia, as well as newly acquired projects.

On the 9th^Th In 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 would acquire 100% of Newmont’s shares in the target company for the purchase price of US$1 billion. The Akyem Gold Mine has favorable mineralizing conditions and significant potential for exploration and reserve expansion.

Wall Street remains optimistic about this transaction, which is in line with the development strategy of Zijin Mining Group Company Limited (OTC:ZIJMF) and has a positive impact on strengthening the resource reserves in the company’s gold segment, increasing the gold production produced at the mine and supporting the implementation of the goals of the company’s production volume plan for the next 5 years.

According to Wall Street analysts, 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 November 4th: $4.16

3-year sales growth: ~8.2%

3-year net income growth: ~13.5%

Average upside potential: 87%

Number of hedge fund owners: N/A

Reit 1 Ltd (OTC:RETDF) is engaged in the acquisition, management and leasing of real estate. It holds real estate for commercial and industrial use primarily in the central region of Israel.

Reit 1 Ltd (OTC:RETDF) closed the second quarter of 2024 with a double-digit improvement in its key operating parameters, NOI and actual FFO. The company maintained high occupancy rates and saw office occupancy improve to ~91.6% compared to ~90% in the previous quarter of the year. Reit 1 Ltd’s (OTC:RETDF) strong results were primarily supported by the strength of the fund’s asset portfolio.

Wall Street analysts believe the company’s growth is likely to be supported by increased diversification, particularly in industrial and logistics assets. Reit 1 Ltd’s (OTC:RETDF) growth strategy focuses on geographical and sectoral diversification, development opportunities and the refurbishment and modernization of existing properties.

Reit 1 Ltd (OTC:RETDF), in its presentation dated March 30^Th In June 2024, the NOI forecast for 2024 was increased from ILS 452 million – ILS 462 million to ILS 469 million – ILS 474 million. In addition, the adjusted FFO for 2024 was revised upwards 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 real estate portfolio while remaining focused on increasing its sectoral and geographical diversification.

In the first half of 2025, Reit 1 Ltd (OTC:RETDF) expects to complete the construction of the logistics property in Haus Shemesh. The company continues to market and improve the premier employment park in Ra’anana.

According to Wall Street, shares of Reit 1 Ltd (OTC:RETDF) have an average price target of $7.80.