As measured by the S&P 500, U.S. equities are up a solid 10% since January 1st. However, one segment hasn’t yet caught up to the running bull market: the penny stock sector. The Russell 2000, a reasonable proxy for penny stocks to buy, returned just under 3% over the same period. But that may soon change.
After last week, we know that the likelihood of successive rate cuts in 2024 is high. Few stock sectors surge as much during low-rate periods as penny stocks. To be clear, we aren’t going to come close to ZIRP-era exuberance. Powell and the team are likely targeting rates in the low 5% range for the rest of 2024 before dropping to high-4s next year. By comparison, today’s target rate is 5.5%. Still, we’re in a unique position that will send penny stocks surging.
After a few years of austerity and rate hikes, the “worst in class” penny stocks are kaput, having gone bankrupt, private, acquired or otherwise. The remaining contenders are stronger, leaner and more competitive. If a penny stock has survived the past few years, it’ll likely be ready to run once rates start dipping. If you’re waiting until then, don’t. These penny stocks to buy stand a chance of breaking free from micro-cap conditions and fighting their way to success.
Desktop Metal (DM)
3D printing company and penny stock Desktop Metal (NYSE:DM) struggled mightily as rates climbed. It fell from its $30 high in 2021 to literally penny stock territory today below $1 per share. But Desktop Metal’s mettle was tested, and it came out stronger on the other side. This set the company up to surge in the next penny stock bull run.
Executives, board members and shareholders learned a series of hard lessons post-ZIRP that went contrary to the “growth at all costs” mindset that was comfortable when debt was cheap. Penny stocks like Desktop Metal that adapted to changing tides are stronger financially and better positioned to weather future economic storms. At the same time, they simultaneously set to sail when conditions shift in their favor.
Desktop Metal’s financials improved in its fourth-quarter filing, which included slashing its net loss by more than half (end-of-year loss in 2023 was $323.4 million, 740.3 million loss in 2022). This while its burn rate dropped 25%, and its cash balance ballooned. Better yet, the company projects breakeven EBITDA in 2024’s second half. There’s still time to get on board before Desktop Metal prints profit.
Tilray Brands (TLRY)
Of the penny stocks to buy listed, Tilray Brands (NASDAQ:TLRY) has had a head start on the next bull run after German legalization efforts signaled new market opportunities for cannabis stocks worldwide. The stock popped 26% in just a few short days. This was welcome news for the legions of canna-bulls stuck with the stock as it trended downward following a February 2021 peak at just below $30 per share (discounting, in this case, the stock’s absurd post-IPO pop to $150).
If we factor in additional sector-specific outlooks, the prognosis is even stronger. Legislators are still pushing for U.S. rescheduling of cannabis from the most restrictive (Schedule I) to the least (Schedule III), even if outright legalization isn’t yet in the cards. Even moderate federal softening toward the cannabis question can cause weed stocks to spike across the board. Tilray has a unique benefit in the meantime to help buffer against unexpected outcomes.
Tilray holds 5% of the national craft beer market, a synergy that helps the company keep the lights on while waiting for legalization in the U.S. and boosting bottom lines in legal regions with razor-thin profit margins. Better yet, Tilray’s Anheuser-Busch (NYSE:BUD) craft beer acquisition came bundled with existing marketing, distribution and compliance institutional knowledge baked-in — all of which will set Tilray apart when legal winds shift.
iRobot (IRBT)
Though its per-share pricing (about $8) seemingly excludes iRobot (NASDAQ:IRBT) from penny stock territory, its $229 million market cap is smaller than both Desktop Metal and Tilray. Its upside potential is that much more lucrative. Better yet, iRobot stands out as a potential comeback story of the year. If conditions pivot toward its favor, it could create unstoppable momentum for the robotics stock no matter the wider market conditions.
Amazon’s (NASDAQ:AMZN) failed acquisition hinged on the company’s patent and intellectual property catalog. Although robotic vacuum sales have slowed recently, its advanced tech remains an attractive prospect for potential acquirers and investors alike. The wider robotics sector is undergoing a kind of robotic renaissance. This positions iRobot as one of the few household names set to capture immense institutional and retail investor attention as the trend materializes.
Even if iRobot doesn’t hang its hat on M&A hopes, all isn’t lost – though sales are in a slump, the company is right-sizing operations (fitting in with the “survive or die” small-cap stock theme) and recently improved per-share earnings by 26%. Despite the boost, iRobot trades at just 0.37x sales — making IRBT stock a unique value play stacked atop growth potential.
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, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.