In this article, we will take a detailed look at the 15 Cash-Rich Penny Stocks Hedge Funds Are Buying. For a quick overview of such stocks, read our article 5 Cash-Rich Penny Stocks Hedge Funds Are Buying.
Risky asset classes got punished after the Federal Reserve started to raise interest rates to tackle inflation. But amid the talk of expected rate cuts in 2024, small companies that are deemed risky have already started negotiating decreases on their loans. A latest report from the Wall Street Journal cited data from PitchBook LCD which shows that companies with low credit ratings including SeaWorld Entertainment and Dave & Buster’s have asked investors to decrease interest rates on about $62 billion of sub-investment grade loans in January. The report said that these new repricings are fueled by the Fed’s intention to decrease interest rates and companies trying to negotiate lower interest rates are starting to see success given the optimism in the broader markets. The report said that when the Federal Reserve started to raise interest rates, markets feared a flurry of loan defaults. But loan defaults as of the end of 2023 remain lower-than-expected as companies were able to extend their debt maturities by replacing older debt with new bonds or loans.
The WSJ report also cited Kevin Loome, a high-yield portfolio manager at T. Rowe Price, who said that the latest deals on borrowing conditions is “a sign of strength in the market that the issuers are able to do it.”
Can Penny Stocks Jump in 2024?
Penny stocks get tarnished when investors are spooked as they exit risky companies in favor of cash or stable, recession-proof stocks. But penny stocks could rebound in 2024 amid the start of a new bull run and the inflow of huge cash investors amassed over the past several months when markets were low. A November 2023 report from the Wall Street Journal had cited data from the Investment Company Institute which said that investors had $5.7 trillion parked in cash-like money-market funds. Investors could open the floodgates of these cash piles in 2024 which would cause a massive jump in equities, including penny stocks. The November 2023 report from the WSJ report also quoted Ali Dibadj, chief executive of Janus Henderson Investors, who predicted that if the Fed begins to cut interest rates, cash piled up in money market funds would be funneled into the stock market.
“For the first time in a long time, cash is a competitor. But I think as soon as short-term rates start to tick down, you’re going to see large flows to other assets.”
Methodology
For this article we first used a stock screener to identify penny stocks (stocks trading under $5 as of Jan. 9) with price to free cash flow ratio of under 15, a low debt to equity ratio (under 0.1) and high cash per share. Cash per share is a metric that shows available cash to a business divided by the number of equity shares outstanding. After applying these filters we got a long list of stocks, out of which we selected 15 stocks with the highest cash per share and free cash flows.
15. GEE Group Inc (NYSE:JOB)
Number of Hedge Fund Investors: 3
Free Cash Flow (TTM): $5.8M
Staffing and placement services company GEE Group Inc (NYSE:JOB) ranks 15th in our list of the best cash-rich penny stocks to buy according to smart money investors.
As of the end of August 2023, GEE Group Inc (NYSE:JOB) had 12 consecutive quarters of positive EBITDA and 8 consecutive quarters of positive cash flow under its belt.
Insider Monkey’s database shows that three hedge funds had stakes in GEE Group Inc (NYSE:JOB) as of the end of the third quarter of 2023.
14. Imperial Petroleum Inc (NASDAQ:IMPP)
Number of Hedge Fund Investors: 3
Free Cash Flow (TTM): $46M
Imperial Petroleum Inc (NASDAQ:IMPP) in September 2023 approved a repurchase program to buy back shares of Imperial Petroleum Inc (NASDAQ:IMPP) worth up to $10 million. In October Imperial Petroleum Inc (NASDAQ:IMPP) posted third quarter results. Adjusted EPS in the quarter came in at $0.19. Revenue in the period fell 31% year over year to $29.4 million.
13. Ocuphire Pharma Inc (NASDAQ:OCUP)
Number of Hedge Fund Investors: 3
Free Cash Flow (TTM): $23M
Over the past one month Ocuphire Pharma Inc (NASDAQ:OCUP) shares have gained about 16%. The clinical-stage ophthalmic biopharmaceutical company Ocuphire Pharma Inc (NASDAQ:OCUP) posted Q3 results in November. GAAP EPS in the quarter came in at $0.25. Revenue in the quarter totaled $11.94 million.
A total of three hedge funds tracked by Insider Monkey had stakes in Ocuphire Pharma Inc (NASDAQ:OCUP).
12. Retractable Technologies Inc (NYSE:RVP)
Number of Hedge Fund Investors: 3
Free Cash Flow (TTM): $9.4M
Safety syringes company Retractable Technologies Inc (NYSE:RVP) ranks 12th in our list of the best cash-rich penny stocks to buy according to hedge funds. In September 2023, the company had declared a dividend of $1.00 per share per annum, meeting estimates. The dividend was payable on October 20.
A total of three hedge funds tracked by Insider Monkey had stakes in Retractable Technologies Inc (NYSE:RVP). The most notable hedge fund stakeholder of Retractable Technologies Inc (NYSE:RVP) was Israel Englander’s Millennium Management which owns a $94,00 stake in Retractable Technologies Inc (NYSE:RVP).
11. CPS Technologies Corporation (NASDAQ:CPSH)
Number of Hedge Fund Investors: 3
Free Cash Flow (TTM): $3M
CPS Technologies Corporation (NASDAQ:CPSH) ranks 11th in our list of the cash-rich penny stocks hedge funds are buying. The advanced materials company CPS Technologies Corporation (NASDAQ:CPSH) posted third quarter results in November 2023.
GAAP EPS in the quarter came in at $0.01. Revenue in the quarter fell 6.8% year over year to $6.29 million.
10. Real Brokerage Inc (NASDAQ:REAX)
Number of Hedge Fund Investors: 3
Free Cash Flow (TTM): $21M
Real estate brokerage platform company Real Brokerage Inc (NASDAQ:REAX) ranks 10th in our list of the best cash-rich penny stocks to buy according to smart money investors. As of the end of the third quarter of 2023, three hedge funds in Insider Monkey’s database had stakes in Real Brokerage Inc (NASDAQ:REAX).
In November Real Brokerage Inc (NASDAQ:REAX) posted third quarter results. GAAP EPS in the quarter came in at -$0.02. Revenue totaled $214.6 million.
9. Ammo Inc (NASDAQ:POWW)
Number of Hedge Fund Investors: 4
Free Cash Flow (TTM): $29M
Ammunition company Ammo Inc (NASDAQ:POWW) shares were spotted in four hedge fund portfolios as of the end of the September quarter. With a $2.54 million stake, Thomas Soviero’s Soviero Asset Management is the biggest stakeholder of Ammo Inc (NASDAQ:POWW).
During the second quarter Ammo Inc’s (NASDAQ:POWW) adjusted EPS in the period came in at $0.05, beating estimates by $0.02. Revenue in the quarter fell 28.8% year over year to $34.37 million.
8. Gulf Island Fabrication Inc. (NASDAQ:GIFI)
Number of Hedge Fund Investors: 5
Free Cash Flow (TTM): $5.9M
Gulf Island Fabrication Inc. (NASDAQ:GIFI) makes steel structures and modules. In December, Gulf Island Fabrication Inc. (NASDAQ:GIFI) said its board approved a $5 million share repurchase program, effective Dec. 15.
A total of five hedge funds in the database of Insider Monkey had stakes in Gulf Island Fabrication Inc. (NASDAQ:GIFI).
7. Spero Therapeutics Inc (NASDAQ:SPRO)
Number of Hedge Fund Investors: 5
Free Cash Flow (TTM): $28M
Spero Therapeutics Inc (NASDAQ:SPRO) ranks seventh in our list of the best cash-rich penny stocks to buy according to hedge funds. Spero Therapeutics Inc (NASDAQ:SPRO) works on treatments for multi-drug resistant (MDR) bacterial infections and rare diseases.
As of the end of the third quarter of 2023, five hedge funds in Insider Monkey’s database of 910 hedge funds had stakes in Spero Therapeutics Inc (NASDAQ:SPRO).
The biggest hedge fund stakeholder of Spero Therapeutics Inc (NASDAQ:SPRO) during this period was Nathan Fischel’s DAFNA Capital Management.
The company in its Q3 earnings call talked about its cash positions and financials:
“Spero is well capitalized with a strong financial position of $93.8 million in cash and cash equivalents as of September 30, 2023. This includes the $30 million milestone we announced on our last earnings call, which has now been received as part of the Tebipenem HBr License Agreement with GSK. We believe that our cash and cash equivalents will be sufficient to fund the company into the second half of 2025. We reported total third quarter revenues of $25.5 million compared with revenues of $2 million in the third quarter of 2022, a $23.5 million increase compared to the prior year period that was primarily a result of the $23.2 million of collaboration revenue related to the license agreement with GSK.
Current revenue was $2.1 million in the third quarter of 2023 compared to $0.9 million in the same period in 2022. Research and development expenses for the third quarter of 2023 were $16.4 million compared with $7.4 million in research and development expenses for the same period in 2022. This $9 million year-over-year increase was primarily due to higher direct costs related to the Tebipenem HBr and SPR720 programs. These included increased clinical activity related to our ongoing Phase 2a trial of SBR720, as well as startup clinical activities and increased preclinical activities related to the planned Phase 3 trial of Tebipenem HBr. General and administrative expenses for the third quarter of 2023 of $5.7 million were lower than the $6.6 million reported in the same period in 2022.”
Read the entire earnings call transcript here.
6. Equillium Inc (NASDAQ:EQ)
Number of Hedge Fund Investors: 5
Free Cash Flow (TTM): $11.6M
Clinical-stage biotech company Equillium Inc (NASDAQ:EQ) shares have gained about 12% year to date through January 9. GAAP EPS of Equillium Inc (NASDAQ:EQ) in the third quarter came in at -$0.11, beating estimates by $0.05. Revenue totaled $8.87 million, beating estimates by $4.12 million.
A total of five hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Equillium Inc (NASDAQ:EQ).
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Disclosure. None. 15 Cash-Rich Penny Stocks Hedge Funds Are Buying was initially published on Insider Monkey.