The overall stock market may not be out of the woods when it comes to high inflation, high interest rates, and slowing economic growth, but that doesn’t mean it’s best to stay on the sidelines completely. Certain types of stocks could outperform in 2023. When it comes to the best penny stocks right now, many of them are in these categories.
Stocks best-positioned to perform well during this year fit into two categories. First, value stocks. As market analysts will point out, value stocks performed well in 2022’s rising interest rate environment. As the Federal Reserve continues to raise rates, market conditions are likely to remain more favorable to value stocks than to growth stocks.
Second, reasonably-priced stocks with company-specific catalysts could also perform well in 2023. These are mainly companies poised to experience a big jump in profitability, even as the overall economy is struggling.
As investors are starting to catch onto the opportunity with these seven best penny stocks, consider it high time to join in.
|ARC||ARC Document Solutions||$3.55|
ARC Document Solutions (ARC)
Already trending higher at the tail end of 2022, ARC Document Solutions (NYSE:ARC) has rallied in a big way since the start of 2023. As of this writing, shares in the specialty printing and document services company are up 18% year-to-date.
But far from a situation where “the ship has sailed,” ARC stock may have room to keep climbing. Even after the stock’s strong run-up over the past six months, ARC continues to trade at a low valuation (12.6 times earnings).
The company’s recent operating results have also been steady, considering concerns about the potential impact of an economic downturn on demand among ARC’s main customer base (the engineering and construction industry).
On top of all this, ARC continues to be a high-yield stock, with a forward dividend yield of 5.65%. A great combination of low price and high yield, consider it a buy.
In December, it seemed as if investors were finally realizing that Comstock (NASDAQ:CHCI) is not a homebuilding stock. However, since then, CHCI has pulled back. Put simply, this works to your advantage. Shares are now cheaper, but the misclassification still stands.
Despite moving out of the home construction business years ago and becoming a manager of commercial real estate space in the Washington, D.C. metro area, most stock market research resources categorize CHCI stock as a home builder. As a result, shares trade at an extremely low earnings multiple (5.4).
Although commercial real estate isn’t exactly thriving right now, Comstock (which collects set fees for managing a property) could stay consistently profitable. While it hasn’t happened yet, the market could permanently correct its mistake, resulting in a big re-rating for CHCI.
Galaxy Gaming (GLXZ)
Galaxy Gaming (OTCMKTS:GLXZ) develops table games, licensing them to brick-and-mortar and online casinos.
Shares in this micro-cap penny stock went on a hot run during the 2021 bubble in gambling stocks, but like similar plays, have struggled over the past twelve months.
Along with excitement over the growth potential of the iGaming industry, GLXZ stock has experienced other headwinds. Namely, a stronger U.S. dollar, which has had an impact on the company’s growth.
However, more recently, shares have started to move higher, as investors look beyond current issues, to the company’s future potential.
With a strong chance growth re-accelerates (whether from the continued growth of iGaming, or Galaxy’s introduction of new games), GLXZ is well-positioned to make a big recovery in price. In addition, according to one investor bullish on the stock, the company could be a worthwhile acquisition target for one of its main customers.
I-80 Gold (IAUX)
After rallying in November and December, I-80 Gold (NYSEAMERICAN:IAUX) has pulled back slightly since the start of 2023. However, you may want to “buy the dip” with this exploration-stage gold and silver mining company, for two reasons.
First, while investor excitement for IAUX stock has cooled down, the reason for the late 2022 rally still stands. As I discussed last month, this rally was due to I-80’s announcement of promising drilling news at its mining projects. As this junior miner moves further into the production stage, it may experience a big jump in profitability.
Second, while I-80 is finding more gold, gold prices are moving higher. With spot gold prices now back to $1,900 an ounce, a potential easing or pivot on interest rates by the Fed could send gold back above $2,000 per ounce. These two factors could propel IAUX to new highs.
Among the best penny stocks, Jerash (NASDAQ:JRSH) has one of the least complex bull cases out there. That is, the “play” with shares in this apparel maker is to buy low, as economic conditions remain challenging, and sell high, once the economy normalizes.
Granted, much like it’s near-impossible to time the market, it’s difficult to anticipate when Jerash’s operating results will improve. However, even if it takes longer than expected for the company’s earnings to re-hit their pre-downturn levels (around 67 cents per share), it may be worth the wait.
Applying a modest multiple (say, 15 times earnings), an earnings rebound could send JRSH stock back up to $10 per share. Not bad, considering the stock trades for just $4.36 per share today, with low likely downside risk, as it now trades at a moderate discount (24%) to book value. JRSH’s current dividend (4.6%) isn’t anything to sneeze at, either.
During 2022, KonaTel (OTCMKS:KTEL) shares traded wildly, going from sub-$1 per share prices to as much as $1.75 per share, all the way back down to $1 per share.
This makes sense, given its small size, and the fact it trades over-the-counter (or OTC) rather than on a major exchange. However, if you can stomach the volatility, KTEL stock remains one of the best penny stocks to consider as a long-term speculative investment.
As I discussed back in October, KonaTel is growing fast, in an industry that’s recession-resistant (government-subsidized phone and mobile data services).
Although operating expenses have gone up recently, due to the expansion of its mobile data business, management is starting to take its foot off the gas, which may result in an acceleration in the company’s operating margins. This could pave the way for KTEL to take off, as KonaTel swings toward profitability.
Pitney Bowes (PBI)
Pitney Bowes (NYSE:PBI) has remained on an upward trajectory, as it continues to be the target of an activist investing campaign. Hestia Capital, which owns 7.1% of the business products company, plans to nominate a majority slate for PBI’s board.
As success with this proxy fight could be a game-changer, investors continue to pile into PBI stock. However, even as shares have climbed around 93% from their 52-week lows, it’s not as if the potential impact of Hestia taking control is fully reflected in Pitney Bowes’ valuation.
If Hestia wins, and implements a sweeping restructuring plan, the resulting profitability improvements could send PBI (which a few years ago traded for more than $10 per share) back up to prior price levels.
Alongside the potential for additional outsized appreciation, PBI also currently pays a 5-cent quarterly dividend, which gives this penny stock a 4.55% annual forward yield.
On the date of publication, Thomas Niel 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.