There are thousands of publicly-traded companies whose shares are in “penny stock territory” (trading for $5 or less per share), but arguably a small fraction of these should be considered penny stocks to buy.
For one, a large proportion of penny stocks are low-priced, yet are still “expensive,” in terms of their trading price relative to underlying value.
Alongside these names, are scores of stocks that, although undervalued on paper, have all the red flags of stocks that end up being “value traps” for investors.
However, taking into account fundamentals, valuation, and the presence of catalysts, a few names stand out at strong opportunities right now. These include penny stocks trading on major exchanges, as well as penny stocks trading in the over-the-counter market.
If you’re looking for penny stocks to buy this month, it better be one of the following seven.
Farmer Bros (FARM)
At first, Farmer Bros (NASDAQ:FARM) may not look like an attractive investment opportunity.
In recent years, the coffee wholesaler and foodservice company has been consistently unprofitable. Over the past five years, FARM has declined by over 84.5%.
However, with FARM stock, focus less on the past five years. Focus more on what may lie ahead in the coming five years. As investment firm Lake Cornelia Research Management has argued, Farmer Bros is well-positioned to materially improve its fiscal performance.
In 2023, Farmer Bros made a large asset sale, using the proceeds to de-lever its balance sheet. Through pricing improvements and cost cutting, Lake Cornelia believes that FARM, trading today for around $3.25 per share, could rise to $12 per share within a few years.
While it’s far from certain this turnaround will prove fully successful, risk/reward is highly favorable at current prices.
Flexible Solutions International (FSI)
Flexible Solutions International (NYSEAMERICAN:FSI) is a Canada-based manufacturer of water evaporation control products. Shares have been volatile over the past year, as macro challenges like high inflation and slowing economic growth have affected fiscal performance.
However, based on more recent results, you may want to consider FSI stock one of the top penny stocks to buy once again.
As InvestorPlace Earnings reported last week, FSI’s revenue and earnings for the quarter ending Dec. 31, 2023 came in ahead of expectations. Alongside better-than-feared results, management also provided upbeat guidance in the earnings press release.
The market is still pricing FSI at a discounted valuation of 6.9 times forward earnings. If results in the coming quarters indicate it will meet or beat these forecasts, this stock could have a tremendous re-rating. Even a move to 10 times forward earnings would mean big price appreciation.
Innovative Food Holdings (IVFH)
Innovative Food Holdings (OTCMKTS:IVFH) is a penny stock winner that could keep on winning. Over the past year, shares in this specialty foods company have rallied by more than 160%, but don’t assume that additional upside is limited from here.
As noted previously, IVFH stock is, and continues to be, a turnaround play. Innovative Food Holdings is focusing on maximizing core business profitability. Per the company’s latest fiscal results, improvements to gross margins and adjusted EBITDA have already started to take shape.
In the years ahead, Innovative could hit consistent GAAP profitability. This, perhaps coupled with a uplisting from the OTC markets to a major stock exchange, may drive another strong move higher for shares.
With this, IVFH remains a strong buy, at just under $1 per share.
Midwest Energy Emissions (MEEC)
Midwest Energy Emissions (OTCMKTS:MEEC) is another of the penny stocks to buy that looks unattractive on a stock screener, but is a very attractive opportunity when you dive into the details.
Last month, Seeking Alpha commentator 1035 Capital Management laid out the bull case for this environmental technology company.
Midwest Energy Emissions recently won a patent infringement lawsuit. The amount awarded by the court, coupled with settlements from related litigation, comes out to around $1 per share.
That’s around what MEEC stock trades for right now. That’s not all. MEEC plans to use these proceeds to both de-lever the balance sheet, and to grow its business.
Per 1035 Capital Management, if all goes right, MEEC could eventually hit $5 per share. While not guaranteed to happen, weighing this high upside against the margin of safety provided by the judgment award, and risk/reward is clearly skewed in your favor.
New Gold (NGD)
Spot gold prices have rallied over the past month, but gold mining stocks like New Gold (NYSEAMERICAN:NGD) have made outsized moves higher because of this development.
That’s not surprising, given the large impact rising gold prices can make on the performance of miners.
Gold miners have a high level of operating leverage. With their production costs largely fixed, the lion’s share of incremental increases to prices fall straight to the bottom line. In the case of NGD stock, this isn’t the only catalyst at play.
As InvestorPlace’s Matthew Farley pointed out recently, New Gold is also increasing production at its flagship Rainy River Mine.
The high end of sell-side earnings forecasts call for New Gold to report earnings of 16 cents per share this year, and 32 cents per share in 2025. Not too shabby, for a stock changing hands for under $2 per share today.
Ring Energy (REI)
Gold isn’t the only commodity spiking higher. Crude oil prices are climbing as well, making Ring Energy (NYSEAMERICAN:REI) another of the top penny stocks to buy.
Ring Energy is an independent oil and gas exploration and production company.
While it’s not out of the ordinary for an oil and gas stock to sport a low multiple, REI stock is arguably trading at too cheap of a forward valuation.
Shares today trade for only 4.6 times forward earnings. Many comparable names trade at forward multiples in the mid-to-high single-digit range.
Besides the prospect of continued strong profitability, Ring is pursuing multiple ways to maximize shareholder value.
As laid out in its latest investor presentation, the company is making accretive acquisitions, and paying down. Down the road, as results and the balance sheet further improve, Ring Energy aims to begin returning capital via dividends and buybacks.
Yatra Online (YTRA)
Back in December, I broke down the bull case for Yatra Online (NASDAQ:YTRA), a deep value special situation. Shares have barely budged since then, but the bull case remains.
Yatra has an underlying value far in excess of the market’s current valuation of shares.
Yatra’s holdings include majority ownership of India-based travel site Yatra Online Limited. Listed on India’s BSE Exchange, YTRA’s 65% stake is worth around $183.4 million. This position alone is more than double the current market cap of YTRA stock.
Alongside the value of its equity stake, Yatra is sitting on a total of $60.6 million in cash and short-term investments. Put simply, there is tremendous underlying value that in time could be unlocked with YTRA.
While it may be a while before this value is realized, in the meantime efforts like share repurchases may provide upward pressure for the stock.
On the date of publication, Thomas Niel held a long position in MEEC. He 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.